Far from deserting the sector, lenders are now presenting landlords with a wider range of borrowing options than ever before. New figures from financial information site Moneyfacts suggests that there are currently more than 2,000 buy-to-let mortgage deals available, a new record high.
And while the various regulatory and tax changes have spelt trouble for the small-time landlords, the professionals seem to be in the ascendency. A recent study by Aldermore suggested that more than four out of 10 portfolio landlords are looking to expand their portfolios in the next 12 months.
This is unquestionably good news. The government is right to focus on improving the rate at which we build new homes, but a thriving rental sector – populated by responsible landlords for whom property is more than just a sideline – will always be needed.
However, while portfolio landlords appear to be well placed, there is a danger that the intermediaries who arrange the property finance these borrowers need are suffering from a lack of transparency about how lenders assess cases.
There is no doubt that the PRA underwriting changes have significantly increased the workload of intermediaries. We regularly hear from brokers that lenders have interpreted the new rules in radically different ways, leading to a wide variety of approaches when it comes to assessing portfolio landlords.
Not only are lenders asking for different sorts of information about the borrower’s portfolio, but they also want different levels of granularity of that information.
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This has made life much more difficult for advisers. It’s one thing to have to keep on top of the thousands of different rates on offer, but they also need to have a formidable memory to keep on top of the vastly different portfolio requirements, which only makes the advising process that much more long-winded.
Part of the problem here is a lack of transparency from lenders. Sure, as an industry we have done an acceptable job of keeping brokers informed on what details we need from the borrower, and how we handle the existing mortgage application.
But in my view, we haven’t gone anywhere near far enough in explaining to intermediaries precisely why lenders need all of that information on the rest of the portfolio, and how those details are used to assess a borrower.
Yet that information is crucial for a good intermediary. They already have the relationship with the borrower and likely a decent idea of the position of the portfolio. If intermediaries are informed on just how that portfolio is assessed, then they will be better placed to deliver the advice their client really needs.
That need for greater transparency is something we want to address at LendInvest. That’s why we have published a comprehensive lending criteria document for buy-to-let loans, which outlines not just the details we need, but also how we use those details to get a better picture of the borrower and their position.
In our case, it means assessing the overall portfolio at a notional rate of 5.5%. If the interest coverage ratio (ICR) comes out above 125%, then it will be accepted, as is the case if it is above 120% and the total portfolio LTV is less than 75%.
If that LTV figure is a little higher, then we will look into the liquidity of the portfolio before making a decision, while if the ICR comes out at above 110%, then we will review other assets declared by the client as well as the liquidity of the portfolio.
Lenders rely on brokers to connect with borrowers, but by excluding them from key aspects of the decision-making process, we are making their lives harder unnecessarily.