19 Sep 2017

By Mark Blackwell, lending and surveying services director at eTech Solutions

This article was published in Mortgage Introducer, Sept 2017, pg 24-25


From 30 September, portfolio landlords will be subject to new underwriting standards as announced by the Prudential Regulation Authority following a review of the buy to let market in 2015/16.


The new rules mean landlords with four or more mortgaged buy-to-let properties will be required to submit income and mortgage details on all their properties each time they re-mortgage one or take out a mortgage on a new property.


For the first time, a bricks and mortar asset will be subject to regulatory scrutiny as well as the individuals involved, with lenders taking into consideration landlords’ full financial exposure on income and debt and the financial sustainability of their portfolio.  The rules set out minimum expectations that firms should meet in underwriting buy-to-let mortgages, with explicit instructions that affordability assessments should take into account “borrower’s costs including tax liabilities, verified personal income and possible future interest rate increases”, which the PRA anticipate will avoid riskier lending.


Collating evidence of rental income, property value and mortgage repayments on the entirety of a landlord’s portfolio will result in an increase in underwriting workload for any given mortgage application, and consequently longer processing times and higher costs.


With the buy-to-let market offering increasing opportunities for specialist mortgage providers, brokers need an industry-wide solution enabling both to work seamlessly together avoiding confusing portfolio submission processes, making lenders easy to deal with and making brokers’ lives simpler. Bringing lenders and brokers closer together is key to simplifying operations across the industry, with both parties recognising a need for a more unified approach.


The new rules create fresh challenges and opportunities for all. Navigating the new legislative landscape means technology is more important than ever within the buy-to-let marketplace, necessitating a solution to simplify what would otherwise be complex new layers of administration and compliance.


The mortgage market is already embracing new technologies, facilitating increased data sharing between lenders and aligned stakeholders so we know there is a clear appetite for automating processes to bring increased efficiencies and risk mitigation. eTech has developed simplified portfolio submission process for landlords with automated assessment of portfolio data and property valuation information across multiple lenders to streamline the whole mortgage application process for stakeholders across the buy-to-let market.


Mortgage intermediaries have the benefit of an industry-wide solution offering access to specialist lenders in one place, as opposed to the previous requirement for disparate systems for each of them.


Partnering with several other lenders, an end-to-end web-based solution has been developed, allowing lenders and brokers to save time and significantly improve property risk management.


The Buy to Let Hub enables lenders to comply with the new PRA rules for the underwriting of Buy to Let Hub portfolios, taking the burden out of manual data gathering and verification. Lenders are given the tools and controls to configure the Buy to Let Hub to suit their risk appetite and their interpretation of the new underwriting standards, enabling loan applications to be responded to more quickly and giving them increased confidence to make accurate decisions.


Lenders set their own parameters within the Hub, with fully configurable rules on interest rates, thresholds and tolerances. The ability to link Automated Valuation Models (AVM) for incorporation into assessments gives an extra layer of validation, further mitigating risk and strengthening the underwriting process.


For many lenders background properties have not featured prominently in new business underwriting, the PRA are mandating that portfolios are 100% visible in the stress test process. Lenders may elect to stress only a proportion of the portfolio but the fact remains the collation of this data by portfolio landlords in itself will be a sizable task. Keeping these portfolios up to date, lodging key information about changing loan costs and rental income will be easier for all stakeholders within a central system ensuring higher quality data is captured and maintained, and allowing better underwriting decisions to be made.


If regulations produce better outcomes for lenders to make sound decisions on affordability, why not use them as an opportunity for landlords and brokers to create a better set of portfolio data for their own benefits as well as assisting lenders?

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