The title refers to a USA soap opera that ran for a very long time. I sort of remember it because my mother would watch it daily when I was a very young boy. I think it is appropriate for a discussion about the Prudential Regulatory Authority (PRA) changes to BTL lending. A ‘drama’ that captures your interest for a short time and then it fades into the noise. Bouncing from one mini-drama (Brexit?) to another, but none of the core fundamentals of property investment actually change in the end. While we will discuss the PRA change, remember that housing demand and the rents you collect depend more on the supply vs demand and the demographics (income levels, employment and age group).
To declare my hand early, I am all for the PRA changes. It will create a more level playing field for the BTL lenders. Each one will end up using similar ‘base standards’ for assessing the risk and therefore the pricing of a loan. When there is a concentration of risk, the borrowers will need to meet a higher test. Professional landlords with four or more loans secured by investment property represent a more concentrated risk.
As taxpayers we do not want to see lenders diving for the bottom to win business and then coming back to us for a bailout once again when they find they did not assess the risk correctly.
Some landlords reading this article will not like the change. A few will find it directly impacts them so it becomes very personal. Others will think it is more government red tape which started with Europe so it must be bad. And the bulk of the landlords will see it as just ‘more change’, maybe for no obvious benefit. As human beings, we are wired to crave stability or routine. Some people are more this way than others. Change does generally represent conflict.