Giving their opinion in this week’s Market Watch are:
David Whittaker, managing director of Mortgages for Business
Andy Young, chief executive at TBMC
Richard Lambert, chief executive officer of the National Landlords Association
David Whittaker, managing director of Mortgages for Business
Pre-credit crunch, buy-to-let lending accounted for nearly 13% of all gross mortgage lending before sinking to a low of less than 9% in 2009.
Buy-to-let lending over 2011 is likely to come in at £13bn, representing 10% of all lending, and 2012 predictions for lending in excess of £16bn in a flat market of around £130bn would see buy to let heading back to pre-credit crunch levels.
This mirrors lenders’ activity in buy to let.
Mortgages For Business’ index shows an increase in lenders of 31% and product availability at 442 – up 48% on this time last year. We suspect that the Moneyfacts index has some double counting of lender products that cater for different borrower types, but the overall trend is good news for landlords.
There is a limit to how much lenders will reduce pricing in the face of competition, so there is already evidence of criteria stretch and talk of product innovation in Q1.
There are plenty of opportunities where landlords used to enjoy the support of their banks that have withdrawn from the market. This varies from refurbishment finance and conversion projects to small HMOs, which do not require a full commercial underwriting approach.
Lenders that step into these gaps will gain good borrowers with enhanced assets and a better rate of return than would be achieved on “vanilla” buy-to-let mortgages.
I believe 2012 will be a year of change and opportunity in the buy-to-let sector for landlords and lenders.
Andy Young, chief executive at TBMC
The buy-to-let mortgage market has expanded over the last couple of years, with more lenders and products now available for intermediaries and their landlord clients to choose from.
However, despite a large increase in the number of products on offer, many landlords are still finding it challenging to secure buy-to-let funding.
This is because the majority of buy-to-let mortgages currently available are all aimed at the same type of property investor; namely amateur landlords with few properties and a good credit rating.
Many of these mortgages are variations on a theme – similar products, designed in slightly different ways. For example, a higher initial rate with a low lender fee or a low initial rate with a higher lender fee.
Also, despite lenders expanding their existing buy-to-let product ranges or launching new ones, lending criteria is generally still tight in the marketplace. This means that buy-to-let mortgage cases can be difficult to place and are often declined for credit score reasons.
On a positive note, there are lenders offering higher loan-to-value products, better options for remortgaging and more products with incentives, such as a free valuation, free legal fees, no early repayment charges or no arrangement fee.
Probably the biggest gap in the market at the moment is the lack of choice for professional landlords.
Even though they account for around 80% of the private rental stock in the UK, landlords with large portfolios are struggling to secure finance for further property investment.
There are currently only a few lenders with substantial aggregate lending policies offering buy-to-let mortgages in this important sector of the market, so it would be very beneficial if there was further innovation in this arena.
Richard Lambert, chief executive officer of the National Landlords Association
On the one hand, we have the growing confidence of lenders in the buy-to-let market; on the other, landlords wanting to expand their portfolios to meet the high demand for rented accommodation.
You would think that this was a match made in mortgage heaven, but our latest research finds that it is not the case.
We have seen an increase in the number of buy-to-let mortgage options, but lenders still seem reluctant to relax their strict lending criteria, so, many landlords are struggling to get loans approved.
Our recent survey found that just 25% of landlords believe it is getting easier to get a buy-to-let mortgage.
Even landlords with good credit are unable to access loans, because the banks insist on including their personal income in their criteria, regardless of expected rental returns on the property (which are quite healthy in the current market).
Many lenders are also reluctant to deal with landlords who have five or more properties in their portfolio – but these are the landlords who are the most likely to know what they are doing and how to run a lettings business.
There is still plenty of scope for lenders to diversify their buy-to-let offerings and increase the range of products available to meet the need for different types of accommodation the sector. Of course, they must always be sustainable.
However, that is why it strikes me as counter-intuitive not to realise landlords with experience are a good proposition.
Buy-to-let lenders should start offering them sensible LTV ratios and interest rates that reflect the base rate, and also preferential rates for landlords with a good track record of managing their portfolio.
Surely, that is the secure base from which to expand?
