Whilst the last couple of years have seen demand for property in the private rented sector outstrip supply, only four new, serious lenders have entered the buy-to-let market since the beginning of 2011, bringing the total number of operators in this space to around 25 today.
Three of the new lenders – Mortgage Trust, Accord and Abbey for Intermediaries – have plonked themselves squarely into the mainstream or ‘vanilla’ buy-to-let space where most of the lenders operate.
Hopefully, over time this will drive down prices, although there is a limit to how much lenders will reduce pricing, due in part, to the increasing cost of funds.
So far, most of the competition has been centred around improvements in criteria.
One of the most notable criterion changes happened last September when Kensington withdrew its market leading 85% LTV product and then subsequently withdrew from buy-to-let lending. KRBS stepped into the breach shortly after with its own 85% offering.
Since then, we have seen more lenders raise their LTVs and, while most will offer up to 75%, today we have a total of six lenders offering between them more than 20 products at 80% or more LTV.
In addition to KRBS, these lenders are The Mortgage Works, Saffron Building Society, Leeds Building Society, Aldermore Mortgages and, most recently, Clydesdale Bank.
Another sticking point in lending criteria that has seen some improvement over the last year is minimum income requirement (in addition to income earned from rent).
Only two lenders, Aldermore and The Mortgage Works, have no requirement at all. New entrant Mortgage Trust has no set minimum and operates a common sense approach based on affordability.
Accord entered the market with a £35,000 per annum minimum income requirement, but recently reduced this to £20,000 pa which is a positive sign that things are moving in the right direction.
Abbey for Intermediaries, a subsidiary of Santander, entered the market at the back end of 2011 with some fairly uninspiring products in terms of rates and criteria. Whether it will up its game remains to be seen.
Overall, the best buy-to-let mortgage rates available are still being offered by stalwart Coventry/Godiva, but these are aimed at squeaky clean part-time landlords that can raise a deposit of 35% or more, although it does have products up to 75% LTV.
For the professional landlord with more complex property types and/or portfolios in excess of ten properties, the options are still restricted.
As well as offering vanilla products, KRBS has mortgages to suit these landlords. The only other new entrant to this space was Whiteaway Laidlaw Bank, which launched into the market in April 2011 and has since rebranded as Shawbrook Bank.
It joins the likes of KRBS, Aldermore and Paragon to provide funding for HMOs, multi-unit blocks on a single freehold title and properties purchased by a limited company.
More lenders are needed in this space, particularly as we continue to see some banks persist in forcing professional landlords to refinance elsewhere in an effort to reduce their own loan books.
Any lender that does step in will gain good borrowers with enhanced assets and better rates of return than would be achieved on vanilla buy-to-let mortgages.
