Tackling this week’s issue in Market Watch are:
Phil Rickards, head of sales at BM Solutions
Ying Tan, managing director of The Buy to Let Business
Chris Norris, policy manager at the National Landlords Association
Phil Rickards, head of sales at BM Solutions
There is no doubt that the buy-to-let market is starting to head very much in the right direction. With increased demand and better products, brokers and lenders are more optimistic.
However, we continue to be asked why today’s products and criteria don’t match those of 2007.
Quite simply, this affects the whole market, not just buy to let. The difference is the wider understanding and acceptance of why residential deals aren’t available to 100% LTV.
We are unlikely to ever see a return to buy-to-let products of 2007 and nor should we wish or expect it soon. Lenders must make sure that their offering is appropriate and responsible while, at the same time, remaining attractive and accessible.
Market competition defines this.
When lenders call for competition, it’s often heard with a cynical ear. This is a valuable market- why would buy-to-let lenders want to share it? But it’s important that we manage our business and more competition makes a better market.
In 2011, we’ve already seen a real change to the landscape. We’re seeing the return of lenders that were previously big hitters in the good times, alongside some building societies dipping a toe in the water.
On top of that, new market entrants are looking more and more likely. They might be small players here and there, but it all adds up.
The brokers that we speak are reporting higher levels of interest from landlords, and BM Solutions is certainly meeting that demand with some of the most competitive deals we’ve offered in a long while.
Let’s not forget that today’s buy-to-let market is experiencing the kind of good health it hasn’t seen for a good few years. What we do now will prove to be the foundations of tomorrow’s market.
That’s why healthy competition, rather than hasty criteria changes, should be the focus of our actions.
Ying Tan, managing director of The Buy to Let Business
Recent data released by the CML showed that the buy-to-let market has made a strong showing for the first quarter of 2011.
New buy-to-let mortgages in Q1 of 2011 showed an increase of 38% compared to Q1 in 2010 and the number of buy-to-let products have more than doubled.
Add to that the return of lenders such as Paragon and Abbey For Intermediaries, as well as new developments in lending criteria, such as Kensington offering an 85% LTV, and the buy-to-let market is starting to show strong signs of a comeback.
This comeback reflects that professional landlords and investors recognise that the buy-to-let market still offers a good return on investment. With strong rental demand and interest rates still historically low, yields on buy-to-let remain very attractive.
Moving forward, the challenge for the industry will be to support this positive momentum and work towards a sustained growth model that avoids the boom bust scenario of earlier years.
While existing lenders can leverage on the knowledge gained from the recession to create responsible lending policies, new lenders will need to be more attuned to the specialist nature of the buy-to-let market, understanding its market drivers and operational environment.
One area of the industry that was particularly buoyant during the pre-credit crunch days was new builds. With LTVs at 90% and rental cover as low as 100%, this class of investments looked very attractive.
However, optimistic developer valuations and subsequent insufficient rental demand left many landlords in a serious financial quagmire.
This risky area of investment needs to be managed with caution and careful due diligence. Ultimately, consistent rental income of a bricks and mortar investment will provide a better return and fewer sleepless nights.
Chris Norris, policy manager at National Landlords Association
Despite being less than 20 years old, the buy-to-let market has experienced a whole range of possible highs and lows during its short existence, including near extinction only 36 months ago.
Fortunately, with the re-entry of some familiar names such as Paragon and Abbey into the market, it appears that there may be some life left in buy to let and things may be getting a little easier for landlords looking to invest while demand remains relatively low.
This has led many to suggest that we are witnessing a return to the ‘good old days’ of buy to let, when LTVs were high, arrangement fees low and valuations a little more generous.
The NLA, and landlords in general, obviously welcome any increase in product availability and diversity. The last few years have been difficult for portfolio holders who, despite low interest rates, have struggled to obtain affordable finance.
However, we are also realistic about the buy-to-let market.
At the market’s height, we witnessed the growth of the ‘no-money-down’ deal, 100% LTVs and inflated valuations which have left many investors trapped with underachieving portfolios.
We also watched as more than 90% of buy-to-let products were withdrawn from the market almost overnight, exacerbating the oncoming recession for many.
Early signs are that, as risk averse lenders have learned from the past, LTVs are generally lower (although increasing) and lending criteria has been toughened-up.
This has proved a difficult adjustment for some landlords, but in hindsight many of the changes were necessary. Especially as unpredictable house price trends and interest rates, which can only go up, make high LTVs even more dangerous to investors.
The NLA believes that the private-rented sector has a crucial role to play in coming years; it is likely that before the end of this decade one in five households will rent privately.
As a result, there is a great deal of demand for more buy-to-let products and lower barriers to entry. However, any new growth must be sustainable and it must sensible.
