Changes to assessment of portfolio landlords: the buy-to-let market

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By Julian Sampson

TWM’s lending portfolio includes many of the UK’s leading buy-to-let lenders: it is a market that has seen sources of fresh stable capital in the last few years and new entrants. We have assisted many launches and the market is maturing well, despite impacts caused by the Stamp Duty Land Tax (SDLT) surcharge on additional properties, the restriction on offsetting mortgage interest payments against rental income for personal tax liabilities, and the imposition of the EU’s Mortgage Credit Directive with consumer buy-to-lets.

Our lenders have handled these challenges successfully and, in spite of the Bank of England’s concerns on the over-heating of the market, have continued to provide exceptional lending services to landlords.

October 2017, however, brings one final challenge: an overhaul of lending to portfolio landlords.

In September 2016, the Prudential Regulation Authority (PRA) issued a Supervisory Statement setting out its requirements for buy-to-let lenders when underwriting portfolio landlords. The application of different underwriting assessments for these types of borrowers is proving more difficult though. In our experience, portfolio landlords are seldom accidental, seldom laypeople and seldom unprofessional. They are often borrowers who have worked to restructure their portfolios using special purpose vehicle lending (SPV) to benefit from the improvements to income tax treatment and, in some cases, even anticipated the SDLT reliefs available from such restructures. In planning this restructuring of their portfolios, will they now find themselves in a situation where lenders will view them more harshly than the first time landlord?

The PRA’s view is that, “Lending to portfolio landlords is inherently more complex given the quantum of debt in aggregate, the cash flows and costs arising from multiple tenancies and potential risks of property and/or geographical concentrations”.

Whilst this complexity may well be true, we find that our lenders are extremely well placed and have already taken this into account in the round, rather than via prescription. A lender may well decline to lend against a prudently managed portfolio because of a singular issue. This is surely against reason, which would suggest that it is the aggregate that better supports the borrowing outcome?

What we may well see, is that borrowers and lenders will treat the definition of portfolio imaginatively. Will we see a move towards multi-unit freeholds or houses in multiple occupation? Will we see more mixed use lending and more technically interesting portfolios? Will borrowers re-work their leverage or ownership structures, and will they be able to do so before October 2017?

The one thing we can be assured of is that our lending team at TWM, be it for lender or borrower, is already anticipating these issues and working with our clients to ensure they are given time to put arrangements in place. If you are a portfolio landlord, we would be delighted to assist and discuss your requirements.

For further information, contact julian.sampson@twmsolicitors.com

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