BUYtoLET
cent, but reduce the loan to 65 per cent and it’s 4.19 per cent. “It’s not a dramatic difference,” he says, “but it shows a reduction in price for risk. Whether that’s a conscious decision or whether the banking stress tests have led to the change, I don’t know.” Though competition is still limited, it is beginning to have an
effect. Paul Rockett says falling swap rates have also helped reduce pricing for both variable and fixed rates. (Leaders Mortgages saw its average rates in Q2 this year at 4.02 per cent for variable and 4.84 per cent for fixed rate loans.) While lenders had it all their own way when there were only
One applicant was asked for a £12k arrangement fee for a £300,000 loan.
Remortgages account for quite a high percentage of business,
but right now they are not being driven by the desire to fix rates, as interest rates seem likely to stay low for the foreseeable future. Andy Young says that unlike remortgages on residential property, BTL remortgages are often a sign of landlords’ investment activity – “it’s driven by portfolio expansion, not by interest rates.” The average indebtedness of BTL landlords is surprisingly low,
according to John Heron at Paragon. Two thirds of properties in the private rented sector have no mortgage, and on the remainder the average loan to value is 48 per cent, so there is a huge amount of equity in the sector. Landlords are now looking to use this to fund the growth of their portfolios – so many remortgages show them “releasing equity to generate seed capital for portfolio expansion,” he explains, and adds that in the first half of 2011, 47 percent of Paragon’s mortgages were for portfolio expansion, and only 21 per cent for first time landlords. David Whittaker has seen some demand for fixes among
landlords worried about interest rates going up, but he says it’s not an easy decision. “They’re sitting on back book loans where they’re paying one and a bit over base, but a new loan will cost four or five per cent over base; so to get that certainty, there’s a cost to it, there’s no such thing as a free lunch.” Loan to value was dramatically cut after the credit crunch, but
here too the market appears to be staging a partial recovery. Paul Rockett says there is a good selection of 80 per cent mortgages available, though Kensington has recently withdrawn its 85 per cent LTV product. “Landlords are now able to borrow more,” he says, and increasing rents also made lenders’ rental income requirements easier to satisfy. The standard LTV for products is now 75 per cent, though most
landlords appear to be borrowing less. The National Landlords’ Association subsidiary NLA Mortgages says the first half of this year saw an average 67 per cent LTV, though half the mortgages they arranged were over 70 per cent. Still, 85 per cent – routine back in 2006 – is now unattainable; David Whittaker warns landlords, “if you’re waiting for 85 per cent before you invest, you can dig your own grave, it won’t happen any time soon.” He says it’s interesting to track different lenders’ progress. When
new lenders enter the market, “they always come in at 75 per cent lending on a vanilla proposition, then as they gain experience they will increase the loan to value.” Risk pricing has also come to stay, he says, which will help stop the market becoming overheated. While higher LTV products are available, they are expensive – for a three year fix with Accord at 75 per cent the best rate is 4.49 per
56 NOVEMBER 2011 PROPERTYdrum
a few of them, they are now finding they have to compete more aggressively. David Whittaker mentions Accord’s target of lending £50m a month, amounting to 5 per cent share of the BTL market. He says “They’re going to struggle for market share in a market that is okay but not bubbling along, and that will introduce a bit of price pressure.”
SO HOW ARE LANDLORDS FINDING THE MARKET?
I asked Lynsey Sweales, an established landlord with six properties, who is the NLA’s regional representa- tive for East Anglia. Her portfolio is doing well, with three re-lets this year all signed up for twelve months, and rental levels up by £100 over previous lets. But she says her optimism doesn’t appear to be shared by lenders. “The economy is so fragile that lenders are very
cautious. From what I see, they don’t want big portfolio owners.” And though she hasn’t
bought a new BTL property since 2006, she says her experience with remort- gaging her own property back in 2008 was a “horrendous” process, not least in the amount of documentation the lender asked for. She’s also concerned that
lenders are overly driven by box-ticking. “They should look more on a case by case basis instead of being over-cautious,” she says; “They need to look at a landlord’s history and how well they manage their portfolio, whether they invest in their properties.” In other words, a return to using the branch man- ager’s good judgement and to personal lending.
Lenders should stop ticking boxes and look more on a case-by-case basis instead
of being over cautious.’ LYNSEY SWEALES LANDLORD & NLA REGIONAL REPRESENTATIVE
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