BUYtoLET
DAVID WHITTAKER MORTGAGES FOR BUSINESS
The market has grown rapidly, from 11 to 24 lenders and under 100 to 450 products.’
market hasn’t made a huge difference to competition, since they don’t have the financial resources enjoyed by larger players, and are therefore competing with limited funds. “Until the big banks come into the market,” he says, “buy to let will remain relatively subdued.” So far, none of the big banks have addressed the market in a significant way. Despite increased competition from building societies, it’s still the big two – The Mortgage Works (Nationwide) and BM Solutions (Lloyds) – who dominate the market. And, he warns, “though you’ll hear lots of good news stories
saying there are hundreds of lenders in the market, they’re all looking for the same borrower – an experienced landlord with good no-rental income and a low loan to value.” That makes it tricky for non-standard landlords to access funding. Tricky, but not impossible, according to David Whittaker, who
gives examples of landlords who found funding through Mortgages for Business. One, the wife of a GP, already owned a buy to let property worth £120,000, but had £50,000 in credit card debt and little personal income other than the rent. She wanted to raise £80,000 on the existing property to pay off debts and provide a deposit for further property investment. Eventually the broker found her a deal with Aldermore, at 4.18 percent on a five year fix, with a £1,995 arrangement fee. Limited companies are another no-go area with few lenders
willing to entertain loans to them. That’s also the case for related party transactions, David Whittaker says. Directors of a company which had built two new houses wanted to purchase them from the company for tax purposes; again Mortgages for Business eventually found finance (with BM Solutions). But, he says, it’s true that most lenders are looking for a
particular profile. “The investor who has a £50,000 salary as a marketing director and has two or three properties. From a risk perspective, Alleluiah!” That’s the building societies’ holy grail.
FEES, RESTRICTIONS AND OPTIONS Ray Withers of Property Frontiers says that though finance is available, the process has become more demanding. “75 per cent LTV is still achievable,” he says, “but more questions as regards an individuals’ income are being asked than there used to be. Rent coverage is still around 130 per cent so that hasn’t changed,” he says, but adds that lenders are now reluctant to lend on larger houses which might rent out as HMOs. There has also been a large increase in arrangement fees. “These
used to be virtually nothing but are now very expensive – one of my colleagues was recently considering a BTL where they were looking for a £12,000 arrangement fee on a £330,000 mortgage!”
he exclaims. Sadly, cash remains king for more and more of Property Frontiers’ clients as obtaining BTL finance has become increasingly difficult and costly. There are also restrictions on many of the new products
available; for instance, Yorkshire Building Society’s BTL mortgages are restricted by postcode to London and certain parts of the South East. Other lenders operate tight restrictions on the age, experience, and salary of the landlord, as well as the location and type of property. David Whittaker says this is often down to the fact that lenders have relatively small amounts of funding available; “the lenders with the most onerous restrictions tend to be new lenders who want to restrict their business in the opening months,” he says, and restrictions are often removed once the product has become established and an initial mortgage book built up. Aldermore, for instance, has recently decided to accept first- time landlords; it has also increased its loan size and removed the minimum income requirement. Paul Rockett believes that even though lending criteria are still
tight, there are more options available for professional landlords, for houses in multiple occupation, and also for first time landlords. “This has generated a growing interest in buy-to-let investment,” he says, but adds that it’s the small portfolio landlord who really hits the sweet spot in today’s market. David Whittaker says landlords with small portfolios of five to ten properties are well catered for, but owners of larger portfolios
JOHN HERON PARAGON MORTGAGES
Landlords are remortgaging to generate seed capital for portfolio expansion.’
can represent a problem – “they’re at the top end of exposure for any lender on the market”. That leaves the under-financed first-time amateur ruled out
of the market by large deposits and fees. Andy Young detects a delicious irony in the fact that today’s ‘nightmare’ landlord to arrange finance for is “someone who’s never been a landlord before, on a relatively low income, who believes he’s on to a pot of gold, with a tiny downpayment – in short, just the kind of person who was getting finance in 2007 and shouldn’t have!” On the other hand those who take a professional approach can
generally get funding. For instance, David Whittaker says, HMO landlords don’t have a lot of choice but they will find a small number of lenders attracted by the secure, high cash flow HMOs generate, with yields at 10 per cent against 5 per cent for standard rentals ensuring mortgage payments are well covered. He says the “new style HMO landlord”, often providing exceptionally good quality accommodation”, can access funds with Paragon, Aldermore, or Kent Reliance. But there is relatively little competition in the area, so pricing is still high.
PROPERTYdrum NOVEMBER 2011 55
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