Landlords start to shift focus to buy-to-let portfolios after PRA deadline passes, says Barclays chief

MortgagesBuy To Let

Craig Calder, director of mortgages at Barclays, says landlords are placing greater focus on their portfolios after the passing of the secondary deadline of the Prudential Regulation Authority (PRA).

The PRA issued its final underwriting standards around a year ago and in its supervisory statement, SS13/16, agreed on a phased implementation approach.

Firms were required to implement the changes to affordability testing and interest rate stress tests by 1 January 2017, with the remainder of the changes to be implemented by 30 September.

And the secondary deadline has been and gone and new minimum underwriting standards introduced for landlords with four or more mortgaged rental properties are now in place.

Research from Foundation Home Loans suggests nearly one in five landlords (19%) with 20 or more rental properties have sold one or more of their properties in order to reduce portfolio sizes or diversify. In total, more than a third (38%) of UK landlords said they had reviewed the size of portfolios to make sure they could withstand costs. Some 7% were reported to have sold a property. And, writing for Financial Reporters, Mr Calder has asked if the deadline will spark a buy-to-let sell-off.

He said: "it’s too early to say, although landlords are – quite rightly – closely evaluating their holdings in the wake of regulatory and tax changes. Some may choose to reduce their holdings further, whilst others seize the opportunity to increase their portfolios."

The latest Countrywide Monthly Letting Index showed the number of landlords in the UK has dropped by 154,000 since 2015, but that landlord portfolios have increased to a high of 1.44 rented homes on average.

The figures suggested that more experienced landlords appear to be more focused on the rental sector, as the number of rented homes in the private rental sector across the country has increased to 5.3 million. The data showed some 73% of UK landlords own just one property, down from 86% in 2010. Meanwhile, the number of landlords with 10 or more homes has increased by a third.

Mr Calder added: "Greater regulatory scrutiny surrounding criteria and affordability has obviously been implemented with the aim of securing the long-term future of this sector and to protect different types of landlords/investors. Lenders have worked hard over this period to clarify their positioning and implement any necessary changes in terms of how cases are being underwritten.

"An important element within this transition is how well any individual criteria or policy shifts have, and are, being communicated to intermediaries, landlords and investors. This is especially apparent in light of data from Kent Reliance which underlined that just 54% of intermediaries are comfortable that they fully understand what the upcoming PRA changes for portfolio landlords entail, and what they will mean for their business."

He also points out that the framework behind these changes has been clear for some time but that shouldn’t stop BDM teams engaging with intermediary partners where and when possible to ensure changes are recognised and fully understood, adding: "In addition, lenders have to ensure that lending policies evolve in the right manner and still be in a position to provide appropriate solutions.

"As ever, buy-to-let is a sector which needs close attention, and also one which continues to offer many opportunities for intermediaries who are fully in-tune with this challenging but rewarding marketplace."


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