L&G Mortgage Club BTL changes and their impact – lender perspective Kevin Purvey – Director of Intermediaries November 2017

Agenda Journey so far Right here – right now What next

BTL gross lending

Distribution of PRS portfolio size-landlord/dwelling weighted 62% of landlords only own one property representing 28% of PRS dwellings 7% of landlords owned five or more dwellings but they accounted for 38% of the stock

Journey so far Stamp Duty Land Tax -From April 2016 additional 3% stamp duty payable for BTL and second property PRA - supervisory statement introduces minimum standards inc. ICR and stress tests from 1/1/17 BTL mortgage interest tax relief - Effective April 2017 tax relief will be restricted to basic rate and phased in over a 4 year period PRA - supervisory statement SS13/16 introduces more stringent underwriting rules for portfolio landlords in October 2017 Wear & Tear -10% allowance abolished from April 2016 Capital Gains Tax - April 2016 an 8% surcharged was applied FPC – FPC have powers of direction over ICR’s and LTV’s

No sign of a car crash!

New Rules – New Opportunities Differing ICR calculations Lender’s general approach 10 + properties 4 - 10 3 or less Portfolio/Commercial Underwriting BAU including SPV Full market offering Use of technology for large portfolios Specialist lenders & brokers Portfolio Underwriting Evolution of proposition Lenders Exited BAU - criteria & price Proportionate approach to the new rules Lenders taking a segmented approach Price driven New Rules – New Opportunities Differing ICR calculations Product Transfers Transitional Rules Tax advice

ENGAGEMENT client / broker / lender What does the future hold? Landlord Reaction – Unknown reaction by landlords to impending tax relief changes Lender innovation - will continue to address gaps in the market and support intermediaries who remain critical to this segment Product transfers - options have increased as more lenders have entered this market Minimum energy efficiency standards - to be implemented 1st April 2018. Any private domestic property with an EPC rating of F or G will be considered sub-standard More use of transitional rules - provision within the PRA supervisory statement to protect existing BTL customers Basel Committee - is still deliberating on the capital that lenders need to hold for BTL mortgages. Ltd Co / SPV - clearly an option for some moving forward but tax advice essential ENGAGEMENT client / broker / lender

BTL Market resilient but some hurdles left to jump Summary BTL Market resilient but some hurdles left to jump Lender interpretation of rules implemented on time Level of documentation Complex market & customer confusion Choice & opportunity Further product and criteria innovation Closer lender/intermediary relationships