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Rethinking the excesses of buy-to-let

by: Paul Clampin
  • 04/09/2012
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Rethinking the excesses of buy-to-let
Earlier this month marked the fifth anniversary of the beginning of the credit crunch when the world of lending changed dramatically.

I, like many, have vivid memories of television news coverage of the casualties of City firms carrying boxes containing their whole careers out the door.

Usually anniversaries are cause for celebration, and whilst this isn’t the case here, it is important to stop and reflect on how the wider mortgage market has reformed and the continued lessons we can all learn from it.

The buy-to-let market has displayed relative strength in comparison to the mortgage market as a whole. The CML’s latest data shows that buy-to-let lending increased by 5% in the second quarter of 2012.

This is still a long way off the level of lending at the peak of the market in 2007, but perhaps this is not such a bad thing.

Excessive lending at the peak of the market was simply unsustainable. Some lenders offered loan-to-values that were irresponsibly high and some offered unsustainable affordability calculations. In fact some lenders operated no viable affordability assessment at all.

The valuation process was weaker than it might have been, and failed to identify unsuitable long term rental properties, especially in the market for new-build apartments – an area that experienced rapid growth.

Today’s market looks very different. Lenders across the board – residential and buy-to-let – are adopting a far more prudent approach when it comes to LTVs and affordability testing. The valuation process has improved significantly and is appropriately cautious.

However, there are still areas where improvement can be made. Buy-to-let can add real value to society by improving diversity in housing choices. To do this effectively there needs to be greater support for the private retal sector across the board, for different types of landlords, who are providing a range of housing solutions for a variety of tenancy types.

In short we need greater diversity in lending in buy-to-let and not just the propagation of “me too” offerings.

Paul Clampin is director of underwriting at Paragon Mortgages

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