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Do you expect to see less or more second charge mortgage lenders in 2018?



34% predict lenders to pull out of BTL market


Leaving BTL market

Lenders should consider expanding their target market rather than prematurely pulling out of the buy-to-let (BTL) sector ahead of changes to underwriting standards, a broker has urged.

A recent poll conducted by Loan Talk found that 34% of respondents expect lenders to pull out of the BTL market after the Prudential Regulation Authority (PRA) set new minimum expectations for underwriting standards from 1st January 2017.

As part of the changes, lending to landlords with a portfolio of at least four mortgaged BTL properties should be subject to specialist underwriting changes.

However, Steve Olejnik, chief operating officer at Mortgages for Business, questioned whether this would actually result in safer lending.

“It is ironic that a landlord with three mortgaged properties is deemed a lower risk than a portfolio landlord with say, 10 properties, particularly where void periods are concerned,” Steve explained.

“Surely losing only a 10th of your income is less risky than losing a third.”

Steve suggested that lenders could instead see this tightening of loans to portfolio landlords as an opportunity to expand into the limited company BTL market.

“Some of the mainstream buy-to-let lenders might be deterred because they don’t have the processes, skillsets or computer systems in place to cope effectively with the new requirements,” he admitted.

“I would hope that lenders will resist from responding in a kneejerk way [as] there is still time to up-skill underwriters and invest in new processes and systems if appropriate.

“In particular, I would urge lenders that currently only lend to individuals to consider moving into the limited company space, particularly lending to [special purpose vehicles], it’s really not as complex as it sounds and would help to ensure the health of the sector.”

'Lenders could be doing more'
 

On the other hand, Chris Norris, head of policy at the National Landlords Association, insisted that the impact of the PRA changes may barely be noticeable as they won’t be applied to remortgages and cannot retrospectively change the terms of existing contracts.

“Furthermore, the standards are based on good practice in the marketplace, so very few lenders should have to make major changes to ensure that they comply,” he added.

Despite this, Chris claimed that more could be done to reassure landlords amid a slew of recent tax changes.

“…Most landlords won’t have any experience of financial regulation and are likely to perceive the changes to have a negative effect.

“In order to counteract this fear, the Bank of England and lenders could be doing more to publicise the practical impacts, in a manner designed to be meaningful to laymen, not just bankers.“

'Blows to the market'
 

Similarly, Lucy Hodge, managing director at Vantage Finance, also argued that the underwriting changes were unlikely to have a dramatic effect on the BTL sector.

“There might be one or two smaller lenders who take the decision that the product is not core and the additional requirements for underwriting become too onerous.

“However, those where it does form core, or they are used to processing regulated business, will not find these changes too difficult to implement into their process.”

Lucy believed that the changes could have a positive impact on the BTL market.

“While the PRA’s changes come at a challenging time for the BTL sector given various blows to the market this year, it does create an environment where sustainability is driving lending decisions.

“I think most in the market will share similar views in terms of the objective and lenders will embrace the changes, but there will [also] be a push towards the specialist market as the product becomes more complex and harder to process in mass volume with narrow parameters.”





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