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Regulation restricts buy-to-let mortgage options

Rules introduced by the Prudential Regulation Authority to strengthen the underwriting of buy-to-let mortgages has restricted product choice, according to research commissioned by Paragon.

The rules, introduced in September 2017, forced lenders to embrace a different underwriting process for landlords that have four or more mortgage buy-to-let properties.

However, Paragon’s latest trends report showed that the changes have led to delays in application processing times and an increase in documentation requirements.

John Heron, managing director of mortgages at Paragon, said the increased underwriting burden now required for larger portfolios “makes it more difficult” for lenders competing in the mainstream mortgage market to compete successfully.

He said: “As a result, we are seeing a polarisation in the market, with specialist lenders playing to their strengths, adding product features that enhance value for larger scale landlords and increasing their share of more complex, portfolio business.”

The research from Paragon found 46 per cent of portfolio landlords that had submitted a mortgage application since the introduction of the new rules reported a reduction in the number of the lenders from which they could choose from.

However, non-portfolio landlords were largely unaffected, with 67 per cent saying they had witnessed no change in lender choice.

Despite this, 80 per cent of all landlords said they had noticed that documentation requirements had increased, while seven in 10 said the documentation burden had “increased a lot”.

A spokesman for the PRA said the Bank of England does not comment on industry surveys of this nature.

Andrew Montlake, a director of intermediary group Coreco, acknowledged that there had been some reduction in choice for the portfolio landlord market.

He said: “There have definitely been consequences of the PRA changes. It takes longer, and it is trickier, to process these applications.

“A lot of the mainstream lenders are not able to play in this market and there has definitely been a restriction of choice.”

Mr Montlake believes that the market changes are precisely the effect that the PRA wanted when it introduced the regulations, as part of a wider policy to reduce the amount of buy-to-let activity, but stressed the market may yet see some lenders return.

He said: “It has had the effect that the PRA wanted. As things get a little bit easier, you might see more lenders coming into the market, but I don’t think you will see a market like it was, with masses of choice, across the board, for portfolio landlords.

“That is probably the point of the rules.”

Source: FT Adviser

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Prudential Regulation Authority Stifles Buy To Let Mortgage Market

Recent attempts by the Prudential Regulation Authority to stifle the buy to let market have led to landlords finding it harder to obtain a buy to let mortgage deal.

63 per cent of the landlords aware of the recent changes have claimed that it is now harder to obtain a buy to let mortgage deal. Regulatory changes by the Prudential Regulation Authority have led to more stringent stress tests introduced in January 2017, whilst affordability tests for portfolio landlords were made stricter last September.

The research came from a recent survey by the National Landlords Association, which found that 70 per cent of all portfolio landlords, or those with four or more buy to let mortgages, are facing greater difficulty obtaining finance. This is likely due to the fact that lenders are now required to take into account how all of a landlords’ properties are performing financially when they offer a new mortgage deal.

However, it is not only portfolio landlords affected. 48 per cent of all landlords aware of the changes believe it has slowed down the finance process. Additionally, 46 per cent believe that the changes have reduced the available range of mortgage products.

CEO of the NLA, Richard Lambert, spoke out about how the changes are affecting the sector: ‘These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios. Given that the private rented sector now makes up 20 per cent of the housing market, it is vital that professional landlords are incentivised to continue providing good quality affordable housing to those who need it. This appears to be achieving quite the reverse.’

However, additional research from Money Facts found that there are now 2,052 buy to let mortgage products on the market. This is up from the 1,725 buy to let mortgage products available in September. They suggest that although the process of obtaining a new mortgage might be more complex, the availability remains.

Richard concluded: ‘Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.’

Source: Residential Landlord