Buy to let

How will the new PRA buy-to-let rules affect the bridging market?

The new guidelines from the Prudential Regulation Authority (PRA) regarding buy-to-let underwriting are well underway.

Whether you agree with the rental ratios, affordability and stress testing or not, PRA-regulated lenders will have to reassess their processes to adhere to the regulation.

Even if a buy-to-let landlord can still obtain the mortgage and terms they want under the new guidelines, the application process by PRA-regulated firms – namely mainstream banks – is likely to take longer than previously.

This brings bridging loans to the forefront of the property market yet again. Those looking to grow a buy-to-let portfolio – or buy their first buy-to-let property – still need to be able to act fast in the current competitive property market and bridging could allow them to secure the property they want. They are then giving themselves adequate time to secure a longer-term buy-to-let mortgage that suits them. 

That said, the new guidelines could affect some landlords’ exit strategies for their bridging loan, which is something that investors need to bear in mind. If they are coming to the end of their bridging term, they need to allocate sufficient time to secure their longer-term solution. This could have a knock-on effect on a range of factors, such as the time allocated to renovate a property before it’s able to be refinanced with a high street bank.

Ultimately, with a wide range of bridging products available in the current market – thanks to the increasing popularity and understanding of short-term finance – investors should be able to find a suitable bridge, should they be affected by the PRA guidelines.

As a specialist lender, we aren’t governed under the PRA, so we have some degree of flexibility, although we always apply a prudent, commonsense approach to lending, and adapt our criteria as we see fit and in line with the industry movements. In this case, we view the PRA’s guidelines as being best practice, so we will be adopting their recommendations, while taking our usual tailored approach, taking into account whether the application is from a limited company, a basic-rate taxpayer or a higher-rate taxpayer.

The Financial Conduct Authority has also endorsed the new guidelines and sent letters to all lenders to encourage wider adoption across the industry. It will be interesting to see how the changes play out.

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