News Review: Buy-to-let
Reasons to look past the Big Six lenders
by Bob Young, managing director, CHL Mortgages
it would seem from the latest council of mortgage Lenders quarterly buy-to-let statistics that the bad weather we experienced at the tail end of last year did not have an impact on the sector. the uK’s transport system and indeed the wider economy, if we consider gdP figures, may have been battered into submission by snow and ice but buy-to-let was rather more resilient and indeed improved across the board. overall the market grew by
7% throughout the year with approximately 1.3 million buy- to-let mortgages outstanding, worth £152bn. Buy-to-let now accounts for 12% of the
total number of mortgages outstanding – up from 11.5% in number on 2009. total value of lending improved by a not inconsiderable 22% - £10.4bn higher than 2009 with the total number of loans advanced in 2010 up 10% to 102,000. Quarterly indicators are also
improving steadily; in 2010’s last quarter there were 26,800 new loans advanced worth £3bn. this is a rise of 6% by volume and 7% by value on the previous quarter. arrears on buy-to-let loans
are also going in the right direction although it has to be said that many lenders will be worried about this moving back in the wrong direction if we see interest rate rises anytime soon, and this could also be impacted by a rise in rent arrears as the full force of the austerity cuts and rising unemployment hit home. However, there is positive
New lenders on the horizon
There has been much fluctuation in house price data over the last couple of months; various indices suggest in one iteration that prices are falling while others seem to show price variations holding up even rising. The fact is that most of these indices are flawed in numerous ways and to talk of a national house price average is an extreme red herring anyway. House prices in the UK are particularly region- specific however it’s fair to say that many landlords will be eyeing up potential additions to their portfolios particularly in those areas where prices have dropped but where demand for renting is still strong. The difficulty in translating property targets
into portfolio additions lies of course in available finance and, as we all know, the buy-to-let market is effectively being serviced by only two lenders at present. Other lenders are active
10 mortgage introducer MARCH 2011
news for landlords to set against this in the form of strong tenant demand for private rental properties. While lenders have relaxed lending criteria to a very small extent, it’s still the case that many individuals are unable to meet the deposit requirements and income/ affordability constraints placed upon them in order to become owner-occupiers. First-time buyer numbers are still low and the housing options for this group are firmly focused on renting therefore one would expect tenant demand to remain strong for the foreseeable future. given this overall picture it
is pleasing to see the market continuing to improve and, while it is important not to get carried away with positive news, one would expect to see further quarter-on-quarter improvement throughout the rest of 2011.
however their appetite to lend is finite (as are the two major lenders’) and therefore any news that other ‘household names’ are on the verge of entering the sector will be viewed as positive by many. Last time I wrote this review Abbey were
being rumoured as the next entrants to the sector; now it is the Yorkshire Building Society and it would seem the news is slightly stronger than just rumour. The exact details of the launch are still unknown however if rumours are correct they may not be too far away; hopefully they will have learnt from some of the appalling mistakes made by lenders who rushed into this market without any real understanding of buy-to-let only to crash and burn. A Q2 launch has already been mooted and
we wait to see if this is true and the range of products it makes available. It will also be interesting to see whether the target borrower is firmly of the professional landlord persuasion or the amateur investor looking to get into buy- to-let.
CRITERIA CHANGES – A SIGN OF GREATER COMPETITION 2011 may well have brought the first sign of a more competitive buy-to-let lending sector with the announcement by Kensington of an increase in its maximum LTV to 85% while dropping its rental cover calculation down to 120%. Whether this is the first
shot across the bows of The Mortgage Works and BM Solutions remains to be seen, and given that there is unlikely to be significant amounts of business written anyway, I would hazard a guess that the two big guns are not shaking in their boots about having large tranches of buy-to-let lending taken from them by such product ranges. What it does appear to show
though is a lender willing to weigh up the nature of the buy- to-let market today and price for risk accordingly. 85% LTV is acceptable and so is 120% rental cover if the underwriting is stringent and the lending responsible. One suspects that a number
of lenders may be willing to match these changes however going beyond them would, in my opinion, be a retrograde step. We certainly do not wish to be sending a message that buy-to-let is back to being a no-risk bet for prospective landlords and it is ultimately in all our interests that borrowers have substantial amounts of deposit/equity in their properties and that rental payments cover the mortgage completely and then some. These should be the
core fundamentals of any responsible buy-to-let lending.
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