Last Tuesday, the Prudential Regulation Authority’s (PRA) Financial Policy Committee published a consultation paper outlining the minimum expectations for BTL lenders to adhere to when underwriting deals.
However, David Smith, Policy Director at the Residential Landlords Association, warned that the Bank of England should not overreact to the current surge in BTL applications which are aimed at beating the impending tax increase.
“It is likely that the impact of these will significantly reduce the demand for borrowing,” said David.
“We would urge the Bank to tread carefully and avoid any premature moves that could stifle the supply of the one million rental properties the country desperately needs.”
Meanwhile a spokesperson for the Council of Mortgage Lenders (CML) told B&C that the proposals would need a careful response.
“We will be working with lenders to provide one,” said the CML.
“At first sight, however, the stress-testing requirements of an assumption of rates 2% higher and a minimum threshold stressed rate of 5.5% appear proportionate and in line with mainstream lender practice.
“If the intention is to ensure that lenders fully consider the ongoing ability of a landlord to service the debt through all manner of market conditions, they look likely to achieve that objective.”
Ying Tan, Managing Director of the Buy to Let Business agreed, adding: “Ensuring lenders are responsible with their lending is always welcome.
“Many lenders have already adopted these principals and thus I do not expect to see a drop in buy-to-let lending as a result of these changes.”
Paul Clampin, Chief Lending Officer at buy-to-let lender Landbay, said many lenders were already one step ahead of the regulators, adding: “In order to retain stability in the buy-to-let market, the PRA is asking that all lenders use specific standards to determine long-term affordability of any mortgage – standards which, in fact, are already adopted by many lenders in their credit risk assumptions.”
Bob Young, CEO at Fleet Mortgages, believes that the proposals seem fair and most of the recommendations appear to be common sense.
“My mantra has always been, ‘Only lend to those who can pay it back’, and this seems to be the focus of this consultation,” said Bob.
Whether tighter underwriting standards will result in a dip in buy-to-let activity, the CML added: “Overall, yet another of new quasi-regulation of the buy-to-let sector will tend to dampen down lending at the margins.
“But we see this move largely as a pre-emptive one by the PRA designed to hardwire in good underwriting standards for the future, rather than one specifically designed to change existing current mainstream lending practice.”
Bob said the PRA itself anticipated that these measures could cut lending growth in the BTL sector by 3%, but he still saw strong demand.
“Lending appetite appears strong and, coupled with stronger underwriting, should mean we have a market which is able to withstand another ‘credit crunch-type event’ and end up in far better shape,” said Bob.
“The underlying drivers of the buy-to-let market are sound, and much of this is common sense, responsible lending.
“If that produces better results for each lender and the sector then, to my mind, we have nothing to fear here.”
Paul concluded by saying that there could be a drop in activity as some of the more marginal mortgage applications would not be accepted.
“In particular, this will affect those that would be at risk in an increase in interest rates and taxation,” said Paul.
“We support the prudent approach taken by both the Bank of England and the PRA to mortgage lending and encourage all lenders to review their criteria on a regular basis.”
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