Rules introduced at the end of September 2017 by the Prudential Regulation Authority (PRA) are having a noticeable impact on lenders in the buy-to-let mortgage market, according to Paragon’s latest PRS (Private Rented Sector) Trends research. This is based on interviews involving 203 experienced landlords in Q1 2018.
These new rules include the second stage of the PRA’s buy-to-let underwriting standards. It focuses on making sure that all lenders are applying more detailed underwriting principles when evaluating portfolio business from landlords who own four or more mortgaged properties.
John Heron, Managing Director of Mortgages at Paragon has commented: “The more detailed underwriting required on larger portfolios makes it more difficult for mainstream mortgage lenders to compete successfully for the full spectrum of professional landlord business. As a result, we’re 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.”
According to Paragon’s research, 46% of portfolio landlords who had submitted an application for a mortgage since the new rules were introduced have reported a reduction in the amount of lenders available to choose from. In comparison, 67% of landlords without portfolios have said that there has been no change to the choice of lenders.
However, the majority of landlords have reported an increase in documentation requirements across the market. 80% have said that documentation requirements had increased and 70% reported that they had increased substantially.
Similarly, 80% of all landlords have noticed an increase in the time taken by lenders to process mortgages. However, 54% of landlords with bigger portfolios stated that processing times had increased greatly, whereas only 33% of smaller scale landlords noticed this to be the case.
The research also revealed that three out of 10 landlords said loan to value (LTV) ratios on offer were also lower than before.