PRA phase 2 brings new broker opportunities
By John Goodall, CEO
From 1st October, lenders will need to adapt their processes to meet the requirements of a new set of PRA guidelines. The changes, which include more robust underwriting checks for portfolio landlords (borrowers who own more than three mortgaged buy-to-let properties), stringent affordability testing and rental income validation, have already inspired anxious sentiments from many brokers in the market. However, beneath the uncertainty that often surrounds any prospect of change, there are key benefits which should not be overlooked. In a sector that is constantly partnered with risk, the new guidelines are not only necessary to ensure a better standard of business, driven by more responsible lending, but also offer brokers significant opportunities to stand out from the crowd.
For brokers, it’s critical that they are up to speed with the latest regulation driving the market, so that they can provide clients with the most relevant advice. However, with so many details to remember, there is undoubtedly a lot of pressure on them to learn about the new changes, and an equal expectation on their lender partners to provide as much support as possible during this transition.
The level and quality of educational support from lenders is greatly determined by the recipient of a borrower application. Indeed, those applications made via non-specialist high street lenders may be more likely to cause problems for brokers than applications made to specialist lenders. This is because non-specialist lenders are not accustomed to carrying out the rigorous portfolio checks that the PRA is now due to enforce, whereas many of the specialist lenders have been doing this for some time. With some people predicting that high street lenders may even drop portfolio landlord applications from their remit, the market looks bright for specialist lenders and the brokers they work with in light of the updated regulations, and the fact that 45% of buy-to-let properties are in a portfolio of four or more properties.
Making up approximately 80% of the market, high street lenders may fall short when it comes to an efficient switch to the new rules, as their current processes are not built for such thorough underwriting processes. New methods must be learnt and staff need to be re-educated before they can help brokers, meaning higher costs and an initially slower turnaround of borrower applications.
Conversely, for specialist lenders, it’s simply a matter of business as usual. For specialists like Landbay, one of the major advantages of the new changes is that we are already aligned with the focus on thorough underwriting and so are expertly prepared for the switch on 1st October. This means that we’re instantly able to pass on our knowledge and significant experience of working through complex application procedures. Our experienced lending team are adept at carrying out a tailored underwriting process, led by a case-by-case examination of all landlord applications. The rise of tech innovation also means that our processes are faster, scalable and better-prepared to deal with the initial expected ‘logjam’ of applications.
Despite the significant challenges, the new PRA rules are an opportunity for hard-working, savvy brokers to get ahead of the competing crowd and potentially strengthen their lender relationships. In advance of the impending changes, many brokers are getting ahead of the game by reading up on the finer points of the new rules. This is key to widen the gap between them and others who are solely relying on lenders to feed them a condensed version of the necessary information – a move that could reward them with a favourable increase in business.