Paragon Mortgages, one of the UK’s leading specialist buy-to-let lenders, welcomes the PRA’s Supervisory Statement published today, introducing new minimum underwriting standards for buy-to-let mortgages. Published after extensive consultation, the new standards introduce more comprehensive and uniform affordability testing for buy-to-let mortgages.
The standards will usher in new rules to ensure lenders undertake a thorough assessment of mortgage affordability based on a more standardised review of rental income and property costs, together with a full understanding of each landlord’s wider economic circumstances. This will include a requirement for lenders to take into account how buy-to-let applicants are impacted by the tax changes introduced last year. Importantly, the new standards also require that lenders tailor their underwriting approach to distinguish between landlords with small property portfolios of no more than three buy-to-let properties and those with more extensive and complex property interests.
As an experienced specialist in the buy-to-let sector, Paragon is already well-aligned with the PRA’s requirements. A thorough affordability assessment, together with a full understanding of the characteristics of each property and landlord that we lend to has always been central to our approach and instrumental in maintaining our strong credit metrics. By requiring a more consistent approach across the market, the PRA should be able to ensure that the strong credit performance of buy-to-let lending is maintained and that lending remains sustainable. We would however, expect these measures to restrict the level of growth in the buy-to-let market going forward, by cutting out more marginal business. We also expect a larger proportion of the market to be specialist in nature, consisting of more professional portfolio landlord business. We believe that Paragon is particularly well placed to capitalize on the opportunities this presents given its unparalleled experience in this sector.