On 17 July, we’ll go live with changes to Paragon’s internal systems and processes, aligning with new mortgage regulations from the Bank of England’s (BoE) Prudential Regulation Authority (PRA), which become mandatory from 30 September 2017.
We are implementing well ahead of schedule and there are some very simple reasons for this and some technical changes for you to be aware of.
The principal reason is because not a lot really changes for us. As detailed in our last blog:
Currently, many lenders when underwriting buy-to-let mortgages focus mainly on the rental income and value of the property they are lending against.
With Phase 2 of the new PRA underwriting requirements, when considering applications from landlords with more than three mortgaged buy-to-let properties all lenders will have to collect and validate details regarding all the properties that the landlord has an interest in. This will include collecting information on property values, rental income, costs and mortgages.
The BoE has asked lenders to take this approach because they want lenders to make sure that they fully understand the full financial circumstances of portfolio landlords and the impact any new lending will have on their finances.
Paragon has always asked for information on all the properties a landlord holds and on the full range of their economic activity so that we can assess the landlord’s business in the round and consider the impact of the new lending on that business. So for the most part you should not see major changes in our process and approach for Paragon Mortgages.
A change you will notice though is that after 17 July, portfolio applications will not be acceptable under the Mortgage Trust criteria. Going forward, portfolio applications will only be acceptable under the Paragon Mortgages brand.
Under the new PRA regulations, a portfolio landlord is a landlord with more than three mortgaged buy-to-let properties in either their personal name or a corporate entity, including the proposed application.
In addition to portfolio landlord applications, all limited company applications and applications relating to Houses in Multiple Occupation (HMO) and Multi-Unit Blocks (MUB) will only be acceptable under the Paragon Mortgages brand, regardless of the number of properties owned, as is the case presently.
After 17 July, the only applications that should be submitted to Mortgage Trust are from individual non-portfolio landlords in respect of single self-contained properties.
At present, Paragon takes a considered approach to the requirements for supporting documentation, normally reviewing the case in order to identify the type and level of additional information that might be required to fully understand the landlord’s business and the risk. A comprehensive property schedule will continue to be a requirement in all cases.
The new regulations introduce an increased level of formality around this process such that the underwriter will need to consider whether key supporting documents are needed in each case, including asset and liability statements, cashflow details and a forward-looking business plan.
Our experience of assessing large, specialist portfolios for landlords over many years has helped us ensure that all the changes are in place and that processes are working well before 30 September.
Look out for regular updates on this and other and initiatives launched by Paragon in the coming months.