With an alternative funding model, the phrase attached to any form of funding which falls outside the traditional deposit-taking route or wholesale market financing, Landbay has sat on the fringes of buy-to-let lending since entering the market in 2014, but that seems about to change.
“We want to be a material lender, not a niche lender,” says Goodall. “To us that means a whole of market specialist buy-to-let lender. Specialist buy-to-let lending currently accounts for 15 to 20% of the entire market, but we predict this will grow to around 35 to 40%. Of this future market we want to hold at least 10%. That is where a lot of the challenger banks play and it is where we want to be.”
Referring to Landbay as a lender is, in fact, not correct but it is with other buy-to-let lenders that the firm will compete for business.
“We’re a lending platform, rather than a lender,” explains Goodall after I ask him the question he likely gets asked the most – how does it work? “Think of us as an agent for investors and a security trustee, but from the borrower’s perspective we’re the same as any other buy-to-let mortgage lender,” he says.
Neck and neck with the challengers
The announcement that Landbay plans to ramp up business volumes to a level which puts it neck and neck with the challenger banks seems courageous, given the buy-to-let market is currently going through one of its most turbulent periods since the financial crisis. Goodall, though, has adopted a considered approach to this expansion.
“Given the complications to portfolio landlord lending which will arrive in September when the second wave of PRA [Prudential Regulation Authority] rules hit, we expect that some lenders will pull out of this market.” With reduced players in the portfolio space, an expansion of its product range and an improvement in its pricing and service overtime, Goodall is confident Landbay can move from being a niche lender to being a material player.
As an unregulated buy-to-let lender, Landbay is not required to follow the PRA’s rules, which could be seen as an unfair advantage by its regulated counterparts, but it is not an opportunity the peer-to-peer firm has chosen to exploit. “We believe the new regulatory framework is a good thing for the sector, and have chosen to fully comply with the regulator’s guidelines,” explains Goodall.
The intermediary website launched last week, is part of Landbay’s strategy to grab a larger share of the growing specialist market. Before this, only an application form was available to brokers online.
Expanding the functions of its website has been partnered with the expansion of its broker panel.
Last year Landbay added London & Country and John Charcol to its panel. The platform is already available to a large proportion of the intermediary market, but Landbay wants to make sure that every broker has access to its products directly or indirectly through packagers. More partnerships are in the pipeline, which are expected to be unveiled in February and March.
Coming down the line
Aside from growing its mortgage lending this year, Landbay is preparing to launch its ISA in February – a first for the peer-to-peer sector, says Goodall. Investors choosing to lend money to the platform, to fund buy-to-let mortgages, can use the tax-free wrapper to maximise the amount of interest they can earn on their investment. “This product is likely to drive significant funds into peer-to-peer lending and that will feed through to cheaper funding for mortgages and lower rates for borrowers.”
Goodall sees a number of challenges facing the buy-to-let market, aside from the PRA’s underwriting rules and changes to tax allowances and relief which will have affected some landlords from April this year. “Buy to let has become more like a commercial real estate offering or a small business loan. It makes it more difficult from a tech perspective to assess these cases. It’s a challenge for lenders to display their information and method of assessments in a transparent way for intermediaries.”
Any other predictions for a fairly unpredictable market? Goodall says we could be heading for a slow down in buy-to-let remortgaging activity. “Some 50% of the buy-to-let market is remortgages. Five-year fixed rate products are exempt from the PRA’s standards so we expect to see borrowers opting for longer-term products, slowing down the speed at which people switch deals.”