“Right now renting looks to be a good option, especially as much of the rental stock quality looks much improved versus that of a decade ago meaning for those wanting somewhere to live, renting looks a good option and also provides some flexibility.” However seductive the outlook is for buy-to-let, it would be prudent to look at all the potential risks to the industry.
Competition Following on from the financial crisis, funding lines for
smaller lenders ran dry forcing many to stop lending. In their place we have two titans in the Lloyds Banking Group subsidiary BM Solutions and Nationwide’s The Mortgage Works. Together it is believed the two hold from 66% to 90% of the buy-to-let market. This makes us ask the obvious question of how much serious competition is there in the market? In the past 12 months a number of building societies and smaller lenders have entered the fray. Andy Young, chief executive officer at The Business Mortgage Company, says: “Many building societies have entered the buy-to-let market in 2011 as a way of achieving greater margins on lending than achieved with residential without compromising risk.” “However with the funding constraints of the Source Book, their funding capacities are relatively low and provides insufficient funding to match the needs of landlords.” Consensus is that the market desperately needs another larger lender to build confidence in the sector. Royal Bank of Scotland and Santander are tipped to be the favourites. Other lenders have said they would welcome competition into the market. Alex Hammond, spokesman for Kensington, is quick to highlight the benefits of increased competition. “It’s true to say that competition is good in any market as it can help to stimulate demand,” he says. “Activity and competition within the buy-to-
let sector will contribute to its growth, providing intermediaries with more options for their clients and the providing the rental market with a much needed supply of property.”
Source: Council of Mortgage Lenders
Hammond points out that lenders do not and cannot compete on price alone and when interest rates rise and the cost of funding goes up brokers must expect the price of all mortgages to reflect that. “But competition will create greater innovation in terms of products and criteria and this will benefit intermediaries and their clients,” he adds. Buy-to-let titan BM Solutions is also open to having increased competition come in from other lenders. Head of sales at BM Solutions, Phil Rickards, enthused about strengthening the buy-to-let market. “We really welcome the increased competition that we’ve seen lately from other lenders. We adapted our offering so that we can continue to lend over the last few years and more players in this space can only be good news for the market as a whole.”
Demand for lending There will always be the need for clients to take up the
new levels of funding that lenders are bringing in. That demand does not look to deflate any time soon says the director of the Association of Mortgage Intermediaries, Robert Sinclair. He says: “As we continue to see changing demographics, we will see the average age of those entering property ownership continue to get older. Similarly local authorities and housing associations will continue to struggle to finance new building programmes. “Accordingly, the private rental sector will have to take up the burden as the UK population continues to look for affordable housing. “In addition as new jobs in the UK are created in other
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