It said that the increase in competition in buy to let, as a result of several lenders entering the sector this year, could result in a return to past practices, including significant rises in maximum LTVs and softening of criteria around rental cover and borrower income requirements.
Bob Hunt, chief executive of Paradigm, said: “Concern has already been expressed within the industry that criteria changes of this nature, which effectively make it easier for some borrowers to obtain finance, could deliver a similar result to that which occurred as a result of the credit crunch.”
Paradigm said lenders must maintain deposit level requirements of 15% to 20% for buy-to-let mortgages and rental cover of 120% and above.
Hunt added that brokers must ensure clients understand their responsibilities when it comes to the buy-to-let mortgage, the property investment, and their duty of care to their tenants.
Hunt said: “We are already witnessing the effects of such strong drivers this year with a much more significant level of buy-to-let activity, landlords increasingly positive about future portfolio growth, and new and existing lenders offering more products.
“However, it is vitally important that we maintain a responsible approach to buy-to-let lending, given that it will suit no one to return to a time when some lenders offered 100% mortgages and rental cover requirements became almost an irrelevancy.”
He said: “Buy-to-let has to work for all concerned and it is important that deposit levels are maintained at their current amount and that lenders do not climb too far up the risk curve too quickly, in an attempt to secure volume in an increasingly competitive market.
“We should not forget the mistakes of the past and it is important that brokers point out the potential pitfalls to clients alongside the benefits.”
