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PRA changes herald major opportunity for specialist lenders

Jonathan Samuels Jonathan Samuels
Posted on Nov 27, 2017 | in Blog

I’m sure some landlords were fearing the worst before last week's Budget. After all, they've been in the fiscal line of fire for some time now.

But for once they hardly got a mention, other than the announcement that a consultation will take place on the viability of tax incentives for landlords willing to offer longer term tenancies. Other than that, all was quiet on the buy-to-let front.

Sadly, many landlords are still grappling with a brave new world of significantly higher taxation and a borrowing environment that has become a lot tougher — particularly for portfolio landlords following the Prudential Regulation Authority (PRA) regulations that came into force at the end of September.

The PRA changes, involving increased stress and affordability testing, have placed a far greater emphasis on manual underwriting for portfolio landlords, which is something high street lenders simply don’t have in their DNA.

The banks, as most readers of this blog will know first-hand, aren’t built to carry out bespoke analysis of the way a buy-to-let portfolio is constructed. They're particularly wary of non-standard borrowers, whose circumstances will throw even more complexity into the mix.

There are rumours that some high street lenders will be pulling down the shutters on portfolio lending altogether, or at least significantly reining it in. And this may already be happening, as we, for one, are already seeing an uplift in enquiries from landlords with multiple properties.

We've yet to crunch the numbers but in the two months or so since the PRA changes came into force there has been a lot more activity in this area of our business. We are having considerably more conversations than we were over the summer.

For us, this could be the beginning of a paradigm shift within portfolio buy-to-let lending: in the months ahead we expect the balance of power to continue to shift away from the high street to the growing ranks of specialist lenders like ourselves who are more at ease with the type of underwriting now required — and, crucially, who have not lost their appetite to lend.

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