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PRA changes see more landlords fix for five years

Landlords appear to be switching to a longer-term approach with their buy-to-let rates over the past two years, specialist buy-to-let broker Commercial Trust found.

In Q1 2018 there was a huge swing in popularity for 5-year fixed rate products over 2-year deals.

In 2016, ahead of the introduction of the 3% stamp duty surcharge on second properties, 2-year fixed rate deals accounted for just under 68.5% of market share, with 5-year deals at just over 23%.

However, market share reversed during 2017, when the Prudential Regulation Authority (PRA), introduced stricter lending criteria on shorter fixed term buy-to-let mortgage deals. This change, in essence, made it harder for many borrowers to obtain the amount of borrowing they required.

Andrew Turner, chief executive at Commercial Trust, said: “This report suggests that there has been a significant reaction to the changes brought about by the PRA rules in 2017, which saw much stricter rental calculations applied to shorter fixed rate deals.

“With 5-year fixed rate buy-to-let products, borrowers are more easily able to maximise borrowing by taking advantage of lower, pay-rate deals and it is telling that we have seen such a change in market share over a similar period of time to the PRA changes.”

The trend towards 5-year deals continued to gather momentum in the first quarter of 2018, when they accounted for just under 67% of market share, while 2-year fixed rate products recorded just over 28%.

The data shows a consistent increase in market share for 5-year fixed rate buy-to-let products, since the final quarter of 2016, when this type of product first overtook two-year fixed rates – and just ahead of the first PRA changes.

By Q1 of 2017, 5-year deals held just under 50% of market share, increasing to just under 56% for the second quarter.

By Q3 of 2017, speculation was also rife that a Bank of England base rate rise was a distinct possibility, for the first time in a decade.

Many landlords took the opportunity to review existing portfolios or to make further investments and to take advantage of historically low interest rates.

Consequently, Q3 saw the market share for 5-year fixed deals increase to over 61% – and following the Bank’s 0.25% rise in base rate in November, the final quarter of 2017 saw its market share rise to just under 66%.

Whilst PRA changes have played their part in changing rate terms on mortgage deals, there also remains continued uncertainty over future mortgage interest rates and the outcome of Brexit negotiations.

Turner added: “This data also illustrates that many landlords and investors are savvy enough to understand the implications of a potential rates rise on their mortgage repayments, and adjust their investment strategy accordingly.

“In the context of historic rates, there remain plenty of competitive buy-to-let mortgage rates available and we work with a wide variety of lenders who offer a broad range of products over different terms.

“Now, more than ever before, investors are reliant on an acute knowledge of the buy-to-let mortgage space to overcome the challenges they are presented with.

“But, with in excess of 50 lenders taking differing approaches to the PRA stipulations, I would argue that the capacity to do this effectively lies with the resources of a specialist.

“I welcome landlords struggling to find a solution to get in touch. If there is a solution available I feel confident the breadth and depth of expertise we offer will find it, and by supporting clients right through to completion we aim to alleviate a great deal of the headache some are feeling. ”

Source: Mortgage Introducer

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Regulation restricts buy-to-let mortgage options

Rules introduced by the Prudential Regulation Authority to strengthen the underwriting of buy-to-let mortgages has restricted product choice, according to research commissioned by Paragon.

The rules, introduced in September 2017, forced lenders to embrace a different underwriting process for landlords that have four or more mortgage buy-to-let properties.

However, Paragon’s latest trends report showed that the changes have led to delays in application processing times and an increase in documentation requirements.

John Heron, managing director of mortgages at Paragon, said the increased underwriting burden now required for larger portfolios “makes it more difficult” for lenders competing in the mainstream mortgage market to compete successfully.

He said: “As a result, we are 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.”

The research from Paragon found 46 per cent of portfolio landlords that had submitted a mortgage application since the introduction of the new rules reported a reduction in the number of the lenders from which they could choose from.

However, non-portfolio landlords were largely unaffected, with 67 per cent saying they had witnessed no change in lender choice.

Despite this, 80 per cent of all landlords said they had noticed that documentation requirements had increased, while seven in 10 said the documentation burden had “increased a lot”.

A spokesman for the PRA said the Bank of England does not comment on industry surveys of this nature.

Andrew Montlake, a director of intermediary group Coreco, acknowledged that there had been some reduction in choice for the portfolio landlord market.

He said: “There have definitely been consequences of the PRA changes. It takes longer, and it is trickier, to process these applications.

“A lot of the mainstream lenders are not able to play in this market and there has definitely been a restriction of choice.”

Mr Montlake believes that the market changes are precisely the effect that the PRA wanted when it introduced the regulations, as part of a wider policy to reduce the amount of buy-to-let activity, but stressed the market may yet see some lenders return.

He said: “It has had the effect that the PRA wanted. As things get a little bit easier, you might see more lenders coming into the market, but I don’t think you will see a market like it was, with masses of choice, across the board, for portfolio landlords.

“That is probably the point of the rules.”

Source: FT Adviser

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Prudential Regulation Authority Stifles Buy To Let Mortgage Market

Recent attempts by the Prudential Regulation Authority to stifle the buy to let market have led to landlords finding it harder to obtain a buy to let mortgage deal.

63 per cent of the landlords aware of the recent changes have claimed that it is now harder to obtain a buy to let mortgage deal. Regulatory changes by the Prudential Regulation Authority have led to more stringent stress tests introduced in January 2017, whilst affordability tests for portfolio landlords were made stricter last September.

The research came from a recent survey by the National Landlords Association, which found that 70 per cent of all portfolio landlords, or those with four or more buy to let mortgages, are facing greater difficulty obtaining finance. This is likely due to the fact that lenders are now required to take into account how all of a landlords’ properties are performing financially when they offer a new mortgage deal.

However, it is not only portfolio landlords affected. 48 per cent of all landlords aware of the changes believe it has slowed down the finance process. Additionally, 46 per cent believe that the changes have reduced the available range of mortgage products.

CEO of the NLA, Richard Lambert, spoke out about how the changes are affecting the sector: ‘These findings show that the PRA’s changes seem to be greatly affecting the ability of landlords to find new finance and increase their portfolios. Given that the private rented sector now makes up 20 per cent of the housing market, it is vital that professional landlords are incentivised to continue providing good quality affordable housing to those who need it. This appears to be achieving quite the reverse.’

However, additional research from Money Facts found that there are now 2,052 buy to let mortgage products on the market. This is up from the 1,725 buy to let mortgage products available in September. They suggest that although the process of obtaining a new mortgage might be more complex, the availability remains.

Richard concluded: ‘Landlords looking to add new properties to their portfolios need to be conscious of the new requirements. We suggest talking to your mortgage broker or bank before committing to any new property.’

Source: Residential Landlord