We knew it was coming, we could feel the change but a little part of us wanted to cling to the sunshine and the status quo! Of course, status quo in this industry no longer seems to exist! The attention of the government and the regulators is still firmly on our sector and, just like the chillier temperatures October has brought, the tightened lending criteria that we all expected is finally here.
The new rules will see lenders take into account personal income and borrower costs as well as implementing specialist underwriting for portfolio landlords. Yes, this will ensure all lending decisions are safe and accurate but this could be a case of using a hammer to crack a nut. Buy to let borrowers, for the most part, are business people with well-thought-out strategies. Such changes, which have been implemented to ‘protect’ them, may just cause unnecessary delays. In short, accessing buy to let mortgages will become a much more cumbersome process.
These changes will have a number of effects. Firstly, there will be borrowers who can’t access funding – particularly so-called amateur landlords. The market will undoubtedly see growth levels fall, at least in the short-term. But, interestingly, I think we’ll also see a knock-on effect on other sectors, particularly specialist finance.
The second charge sector is still battling to get mortgage brokers to appreciate the value of these products but I think the more criteria is tightened in the first charge market – both in buy to let and residential – the more the opportunities that seconds present will become clear.
Second charge lending and bridging are both flexible products and lenders often take a more bespoke approach with applicants. This sort of ‘common sense’ approach will be more in demand than ever now that the residential and buy to let market are taking a much more stringent approach to lending decisions.
As for buy to let, the sector will accept the changes and adapt. Goodness knows we’ve had enough experience of jumping hurdles of late and this is just another challenge to work through.
