Santander made its intentions clear – it wanted a bigger slice of the buy-to-let sector – so opened up its product range to self-employed applicants.
Barclays, on the other hand, hiked its interest rate stress test upwards to 125% of 5.79% leaving Clydesdale alone as the only lender to accept applications based on 125% of the pay rate.
The industry was subdued in response to Santander’s move raising the thought that instead of the same old lenders tweaking terms and conditions here and there, what the sector needed was fresh faces with new ideas.
This week our Marketwatch panel of experts discuss what may be around the corner for the buy-to-let market.
Richard Adams, managing director of Stonebridge Group thinks more competition is closer than we think
Tracy Gavin, broker for intermediary firm Linear, says there are product gaps which need to be filled.
David Tweedy, director of market relations at Target Group thinks increased competition will create a sustainable market.
Richard Adams, managing director of Stonebridge Group
Competition in any product arena is always welcome however in buy-to-let it’s also important that any new entrants come into the space with a full commitment to responsible lending.
At present the buy-to-let market looks in a very strong position with existing lenders showing an appetite to lend. Undoubtedly other institutions will be eyeing up the greater margin that can be made in the sector.
However, what we don’t need is a return to the pre-credit crunch days of crazy criteria and lending on a whim.
In terms of potential new entrants, there are always rumours around the marketplace that we are going to see some new faces making their mark.
For example, back at the tail end of April there were rumours about Indian private bank, Axis, looking to recruit a head of mortgages. Plus there are some lenders who pulled out of buy-to-let lending post-crisis which are also likely to return at some point.
I suspect that any new entrant will be adopting a ‘softly softly’ approach – initially offering exclusive products through a very limited range of distributors.
It’s likely they will test their offering and systems to make sure they can handle the market and then broadening out their offering as and when they are comfortable.
We should not hold our breath waiting for another lender with the capacity of a BM Solutions or a TMW to jump into the sector with all guns blazing.
I suspect the buy-to-let market will not change that much over the course of the rest of the year but I do think we can expect to see lending appetite grow and therefore lending levels in 2014 are likely to knock last year’s into a cocked hat.
Tracy Gavin, Linear broker
We do need more competition, particularly in the specialist areas of the buy-to-let market. There are a few buy-to-let products that used to be commonplace which have been withdrawn over the past few years that clients are crying out for. So in this respect there is scope for new entrants to come in and really make a difference.
An example of this is light refurbishment. TMW had a really great product that would enable people to borrow enough money to refurbish the property before letting it out. It was withdrawn recently although there is still a real need for it. There are a couple of products still out there but they usually have a minimum loan value of £100,000 at 75% loan-to-value which is too high for many parts of the country.
More flexibility on fixed rate terms is also needed such as such as longer-term rates for Houses of Multiple Occupancy, but then shorter, one-year deals for other types of buy-to-let clients.
This is a growing market in terms of demand but we now need the supply and range of mortgages to meet this demand. New entrants would increase the level of competition and may also help to reduce elements like the arrangement fee.
Many landlords I meet would like to remortgage their portfolio on to fixed term rates but the arrangement fees make it prohibitively expensive. More competition in the market would increase competition and hopefully contribute towards lower fees and a wider range of products.
David Tweedy, director of market relations at Target Group
More competition in the buy-to-let market will help to spur innovation in product design and support both professional and amateur landlords.
This year we are likely to see new entrants on both the lending and investment side. The market has been growing and the recent changes to pensions legislation combined with this innovation will certainly drive up buy-to-let demand.
With greater expansion and new entrants coming to the fore the shape of the market may well be different by the end of the year compared to what we saw 12 months ago.
Product diversification will increase, providing greater supply and a better choice available to borrowers. This, coupled with any new lenders we see emerging, will also help to increase competition.
Another potential shift that could be on the horizon is where we see the demand for buy-to-let properties grow. Traditionally much of the focus for landlords has been around London and the South East, but as yields compress here demand is likely to increase in other parts of the UK.
Ultimately, to maintain a healthy recovery the market needs cheaper funding. Increased competition, in part stimulated by new entrants, will help to create a more sustainable market. In addition, more professional landlords and a better education for consumers entering the buy-to-let sector are needed to ensure that any negative misconceptions about buy-to-let are addressed. 2014 will likely be an exciting time for this growing market and new entrants will only serve to help boost that growth.
