property portfolio

How are portfolio buy-to-let landlords adapting to the shifting market?

Stricter rules for portfolio landlords came into effect at the end of September, yet portfolio landlord enquiries to lenders have soared in the past two months.

Bridging lender Octane Capital reported a 27% increase in enquiries during October and November from portfolio buy-to-let landlords compared to August and September.

The majority of the company’s enquiries came from smaller portfolio landlords, and Octane believes that portfolio landlords are choosing to borrow through more specialist lenders rather than high street options.

The rise comes on the back of new rules that were introduced by the Prudential Regulation Authority (PRA) from 30 September this year. Portfolio landlords – those owning four or more properties – who are mortgaged are now subject to a stricter underwriting process by lenders, making it more difficult for potential borrowers to get funding.

It means that the entire portfolio now needs to be underwritten when applying for a new buy-to-let mortgage, even if the other mortgages are with a different lender.

Why the shift?

Lenders must conduct a stricter affordability test, which must include variables such as income affordability test, all costs associated with renting a property, tax liability, income net of tax, national insurance payments, credit commitments, committed expenditure, essential expenditure and living costs.

Jonathan Samuels, the CEO of Octane Capital, said: “The PRA changes 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 new stress testing rules mean less box-ticking and more bespoke analysis of the way a portfolio is constructed, which not only requires a greater skill-set, but is time consuming, potentially squeezing margins. This is especially the case for non-standard borrowers, whose circumstances will often add even more complexity.

“As we see it, the PRA changes will trigger a paradigm shift within portfolio buy-to-let lending, moving the balance of power away from the high street to the growing ranks of specialist lenders, who are more at ease with the type of underwriting now required.”

Growing portfolios

Rather than deter landlords, recent months have shown that there’s a still a good number who are looking to buy more properties to add to their portfolios.

According to Fleet Mortgages, more landlords were interested in raising capital through remortgaging their properties to release funds to invest in more properties. It added that the reason for the uptick could be that some expect supply of properties to decrease, which could cause rents to increase slightly.

Fleet Mortgages CEO Bob Young believes there will be an increase in the number of professional and portfolio landlords looking to raise capital in the months ahead.

He said: “Advisers are likely to be in demand for this type of work and should be aware of the portfolio landlord lending options that are available.

“A number of market fundamentals look likely to move in favour of those seeking to add to portfolios by purchasing well-priced properties with decent yields. First, as the most recent ARLA [The Association of Residential Letting Agents] research outlines, it appears the number of private rental sector properties on agents’ books has dropped, which means rents only have one way to go, as supply gets tighter.

“Second, it’s obvious that agents are already seeing rent rises in almost a quarter of their managed properties. Add into this, the relatively benign house price environment and it’s no wonder landlords want to add to portfolios,” he added.

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