that concerns me is that the majority of tenants are young people and the majority of homeowners are older. That average age will move up and as renters who are excluded have families their living requirements will change and the demand for property type in the rented sector will also evolve. PW: The work we have done at Cambridge University simulating the market up to 2025 shows rising numbers of families in private rented accommodation subject to certain
“The work we have done shows rising numbers of families in private rented accommodation”
assumptions about the economic environment and access to mortgages. The moment you vary those assumptions the whole picture shifts. Ray Boulger: The average age of first- time buyers is going up partly because people are having to rent for longer but it’s also because second time movers who would previously have been able to sell and buy are now not able to do that. RT: I’d like to revisit Brian’s idea of a new type of buy-to-let market emerging. My feeling is that 10 years ago buy-to-let was attracting a lot of new investors whereas this time around the growth is being driven by existing landlords expanding their portfolios. John Heron: Yes that’s absolutely our sense of the market as well. RT: And I think part of the reason for that is that buy-to-let investors face the same deposit constraints as first-time buyers. The people who don’t have those constraints are those who’ve already accumulated equity – in other words existing landlords or owner occupiers.
FROM A LENDER’S PERSPECTIVE IS THERE A FINANCIAL REASON TO LEND MORE TO FIRST-TIME BUYERS OR LANDLORDS?
PR: It’s a difficult question to answer because you’re comparing apples to
www.mortgageintroducer.com
pears. If you compare a 95% residential mortgage to a 60% mortgage everyone knows the capital requirements are probably five times higher at the higher loan to value end of the scale. Then when you factor in the premium on buy-to-let it becomes very complex and commercially sensitive to each different lender. PW: It is very profitable to lend on buy-to- let though. JH: Is it more financially attractive to lend to landlords than first-time buyers? There isn’t an overall comparison. It’s about loan to value and it’s at high loan to value that lenders are penalised in their capital requirements. Each group has different requirements so in fact you end up comparing a 95% loan with a 75% loan with a better rate. RT: It also depends on the capital regime of the lender. If you’re an IRB bank, standardised lenders under Basel and then lenders like Paragon under yet a different regime. PW: Profitability is a more important measure of desirability from a lender’s point of view than capital requirements.
BH: Yeah right. You would say that wouldn’t you. JH: The motivation on the part of the landlord to invest has little or no connection to the motives of a first- time buyer to own their own home. The drivers are completely different as well. The argument that has frustrated first- time buyers stuck in rented housing is disproportionate if you take into account the overflow from the social housing sector. Arguably social tenants account for 24% of the private rented sector and student lets account for 15%. Then there are those who can’t purchase, those who don’t want to purchase and then on top of that there are those who might buy if they had a deposit, could get a mortgage or had more confidence in the future of house prices. It’s a drastic over-simplification to see the buy-to-let market as a see saw with the first-time buyer market. BH: If I may make an analogy. When sub-prime first started there were lots of specialist lenders that charged a big margin and provided a valuable service to customers who needed a credit repair product. But a lot of other lenders then started to pile in and margins narrowed and the whole model changed. My concern about buy-to-let is it’s a bit like that. There is a specialist market which is serving a valuable purpose but I worry that we’re seeing more and more lenders pile into buy-to-let and become so consumed by it that they’re neglecting first-time buyers.
JW: 11% of the landlords in the private rented sector own the vast majority of the stock - it’s them who are supplying the growth in the buy-to-let sector because they have the equity not to need 95% mortgages to expand. Whereas a first-time buyer or even an existing homeowner is much more likely to need the higher LTV and they’ll pay a much higher rate which links to affordability as well. JH: I’m not sure it’s helpful to link buy-to- let and first-time buyers at all. PW: That’s the point though, people do. JH: I understand that it’s a debate but they are such fundamentally different markets.
WHO DO YOU MEAN BY “THEY”? IS THERE A BIGGER STRUCTURAL PROBLEM IN THE HOUSING MARKET THAT MEANS NOT ALL SECTORS ARE BEING SERVED SUFFICIENTLY?
BH: Well there are lots of theys. One of the theys is the excluded first-time buyers who are providing excessive demand for rented accommodation that is fuelling buy-to-let. PR: I’m not convinced by that argument. There aren’t lots of lenders piling into buy-to-let. There are probably three main lenders which have been in buy-to-let
MORTGAGE INTRODUCER OCTOBER 2012
35
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52