Axis Bank UK: Considering what the future holds for buy to let

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  • 09/06/2016
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Axis Bank UK: Considering what the future holds for buy to let
We caught up with Andrew Ferguson, head of buy to let at Axis Bank UK, to hear how the lender's first year of specialist buy-to-let lending has gone and his thoughts on what the future holds for the sector.

The first launch stage of Axis brought in excess of £100m of lending, can you confirm your plans for the year ahead?

We are pleased to have exceeded £100m since launch. That figure was achieved from a standing start and was in line with expectations. We enter our second year with a strong pipeline of business and more consistent business flows, so expect volumes well above this. Recent market changes enhance the need for specialist lenders like Axis, so I am confident we can continue to grow this year.

As an advocate of the packager distribution model, how has this worked for you so far and do you have plans to extend your distribution?

We are fortunate to have been very well supported by our distribution partners. We work closely with several specialist packagers, some of the best in the industry, who have supported us very well and who really appreciate the personal and pragmatic approach we are able to offer. They have been proactive in helping develop awareness of our proposition within the market and with two Axis business development managers now in place, we are starting to see some real traction. Packagers work well from a distribution perspective in the specialist space, as well as helping from a process efficiency perspective.

In addition, we have several direct firms on panel who we are working closely with. Inevitably as we grow we will need to extend our distribution, but my preference is to foster a genuine partnership approach with firms who share our values, really understand our proposition and have regular access to the type of landlords that will benefit from our range of products.

From a lender perspective, do you see the potential changes around capital requirements and underwriting standards for buy to let leading to a reduced appetite to lend in the future?

The potential increases to capital weighting, if introduced, will obviously impact on the profitability of lenders. Hopefully common sense will prevail and any increase will be proportionate to the underlying risk. How that feeds through to consumers remains to be seen, with increased pricing being likely.

I think the more detailed lending assessment suggested within the Underwriting Consultation paper CP11/16 for professional landlords in particular, plays into the hands of the specialist lenders.

I am not convinced some of the larger, more mainstream lenders will have the processes, let alone the time and inclination to undertake a really thorough assessment of landlords’ circumstances. We already cater for the needs of professional landlords, understand their needs and the assessment required to ensure the case is sensibly underwritten. We are therefore well-placed, with a few tweaks, to meet the requirements moving forward.

The increased requirements facing lenders will no doubt dampen down buy-to-let appetite for some, probably those for whom it forms a small part of their overall business. The more serious players are likely to adapt and refine things – so long as pricing reflects at least some of the increased costs. The market remains attractive for specialist lenders.

What’s your view on the various changes affecting landlords and whether the market will continue to grow? Do any of these changes impact on intermediaries?

Landlords have been criticised unfairly and blamed for wider structural issues within the UK housing market in my opinion. Lack of any coherent housing strategy, focused more directly on supporting first-time buyers is still missing and needs to be addressed. Properties remain unaffordable for most first-time buyers, not from a monthly loan servicing perspective, but primarily from the perspective of funding a deposit. The fundamental issues of house price affordability, lack of supply and high tenant demand will underpin things for the foreseeable future for the private rental sector.

The taxation changes scheduled to come in from April 2017, affecting interest relief are clearly the major change, with landlords needing to carefully consider how best to structure their portfolio.

Incorporation clearly now makes sense for those individual landlords facing increased costs. By the time 2020 is upon us, the impact for landlords holding property in their individual name is substantial. They should get professional advice and consider their options carefully.

The Stamp Duty changes, while of course having some impact, can be more easily absorbed by those investing over the medium term. Landlords who have a clear investment strategy and take professional advice on how to structure things should still be well-placed over the years ahead. The larger, more serious investors tend to take a longer-term view and there is still plenty of opportunity for experienced landlords.

We are starting to see the majority of lenders move on stress test levels as well and it’s good to see common sense prevail with lenders differentiating between individuals and limited company structures. We expect to finalise our own position in the near future. Property types and locations where yields are higher are likely to be more in demand than ever to keep deposit levels affordable for landlords.

These changes only increase the need for intermediaries within the process, who understand the key considerations for landlords and can help identify which lenders are in a position to help meet their particular requirements. As for overall buy-to-let volumes this year, I think we are seeing a temporary lull and period of uncertainty as landlords digest the changes in the market and ponder the outcome of the imminent EU Referendum vote. If pressed on market size at year-end I would estimate a 5-10% reduction on 2015 levels.

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