Cover
“The buy-to-let market has undergone
something of a revival in recent months with mortgages available up to at 80% LTV from The Mortgage Works.
Paragon’s re-entry has added a broad range of products to meet the needs of the professional landlord. Although Lloyds Banking group have recently restricted their appetite across their brands the re-entry of Paragon has provided some much needed further choice to this sector of the housing market.” Brian Murphy, head of lending, Mortgage Advice Bureau
“The buy-to-let market is difficult with lenders charging high set up fees for rates just below 5% and only slightly reducing fees if you pay a higher rate – and
that’s on a straightforward remortgage. Add to that the LTV required to get a reasonable rate and it all starts to become very unattractive to a purchaser.” Chris Nairn, sales director, New Leaf Distribution
deposit have seen a threefold increase in the past year, after dwindling away to virtually nothing the year before.
show me The money Both Precise Mortgages and Paragon’s ability to secure wholesale funding, however limited in size (Paragon’s pre- credit crunch facility was £2.3 billion) has been hugely reassuring to the market. If these lenders can get investors to bite
there is hope for further wholesale funding secured against buy-to-let.
The asset class took a battering after the dismal performance of many loans made at the height of the mortgage market and the high rates of fraud in Bradford & Bingley and Chelsea Building Society’s buy-to-let books.
But Paragon’s John Heron puts renewed
interest from investors down to the performance of the lender’s existing back book mortgages.
“The number of accounts more than
three months in arrears across Paragon’s portfolio of buy-to-let assets has continued to fall and is currently just 0.86% of the book,” he says. “This is significantly below buy-to-let market peers and also the wider mortgage market.” The impact of the credit crunch on funding and therefore on lending in the sector has been severe acknowledges Heron, but he remains confident in its attractiveness as an asset.
“I am very confident that mortgages we complete into our initial funding line will be match funded,” he says. “We have maintained our relationships with investors through the years and we are happy there is a good appetite for high quality buy-to-let mortgages.” Precise Mortgages managing director, Alan Cleary, said his team’s decision to enter the buy-to-let market followed careful analysis of mortgage books across the market. “The risk looks favourable and the return looks favourable on buy-to-let. The stats show buy-to-let has lower arrears rates, the margins lenders make are better – it’s a better proposition.” And ultimately, says Cleary, the private
rented sector has good fundamentals. “All sorts of people who aren’t able to get mortgages at the moment are renting,” he explains. “That’s why you’ve seen us and Paragon being able to unlock wholesale funding into this space.” Like Heron, Cleary is also confident about further funding becoming available in the sector. “We are, like Paragon is, looking at working with additional funders to expand our lending abilities,” he says. “I’m delighted that Paragon has unlocked funding from Macquarie because that’s favourable for us as well.”
On the other side of the funding fence is Aldermore’s chief executive, Colin Snowdon, whose business relies on retail deposits. Nevertheless, Snowdon is genuinely pleased for Precise Mortgages and Paragon. “I think there is a general issue facing the mortgage market and that’s its real focus
32 mortgage introducer NOVEMBER 2010
on funding from retail deposits. But a £200 billion “normal” market isn’t going to be funded in this way,” he says. “It’s very important to get wholesale funding markets functioning again. From that perspective encouraging that Paragon’s back with a wholesale funding line.”
Lee Gladwell, sales director at Platform, says the wider economic situation should provide further reassurance to investors. “We expect low rates largely to continue and house prices to remain fairly subdued. We would expect that combination to attract more professional investors into the market and that consequently demand for buy-to-let mortgages will increase,” he explains.
“Investors will be keen on that – it offers better margins without significant risk uplift.”
hope in The buy-To-leT dream
CML numbers put the current size of the buy-to-let market at just 19% of its size in 2007. This year looks little better than last with advances in the first half of 2010 at 46,900 with a value of £4.5 billion compared with the same period last year at £4 billion and 44,000 advances. But ARLA research suggests that for
ungeared investment in the private rented sector, yields are far lower than on mortgaged properties. The body put average cash purchase gross annual yields on buy-to-let investment at 5.05% in Q3 2010. Geared yields, or the gross annual rate of
return on mortgaged buy-to-lets, are by contrast at 12.7%.Demand for buy-to-let mortgages may also pick up as 11% of ARLA members surveyed in Q3 this year said landlords are buying properties, up from 9% in Q2. The proportion of members saying that landlords are currently selling properties has simultaneously fallen from 25% in Q2 to 17% in Q3. Paragon also conducted research in October that concurred. It found that on average buy-to-let accounted for 17% of mortgage intermediary business during the third quarter of the year.
Of the buy-to-let mortgage business handled by intermediaries during the
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