There’s often talk in the mainstream, residential market about offering more product choice for high loan-to-value (LTV) mortgages. High LTV products are widely deemed to be the way in which first-time buyers or second-steppers are either able to get on the housing ladder or are able to move up the rungs. And again, it’s predominantly these borrowers who have most to gain from there being a wide choice of high LTV products available.
However, high LTV product delivery need not just be confined to the residential marketplace. Indeed at a recent conference I attended, there was analysis from both speakers and delegates about the continued growth in the buy-to-let market and the potential for what might be described as high LTV product choice in this sector.
To begin with, the overwhelming feeling among lenders and intermediary distributors, was that buy-to-let will be one of two areas which will continue to show strong growth throughout the next 12 months. The other being retirement age mortgages, and one could even say that with the recent reforms, there is a considerable overlap across these sectors – especially if pension pots are utilised to buy investment property.
There’s no doubt that the buy-to-let market stepped up another level during 2014 with gross mortgage lending rising to £27.4bn, and conservative market estimates suggesting £30bn will be surpassed in 2015.
The vast majority of this growth in business came from advised buy-to-let helping to place the intermediary sector is in an incredibly strong position, not just in the buy-to-let market but across the mortgage market in general.
The increased strength, and dare I say, power of intermediaries in today’s market, means that there is likely to be more sustained pressure placed upon lenders to develop product ranges which cater for borrowers that (at present) advisers may deem to be underserved.
In the buy-to-let sector for instance, we have seen a number of new entrants just in the first few months of the year and each of these appears to be targeting ‘specialist buy-to-let’.
One further ‘niche’ buy-to-let area which many intermediaries may think is also underserved, is high LTV buy-to-let. While there has been some activity around the 80% mark in the past few years, there has been little appetite to lend significant amounts in this sector.
And some might say with good reason. Post-credit crunch and recession it was absolutely vital that buy-to-let lenders reined in any such lending and therefore 80% LTV has tended to be the maximum offered since that time. Indeed, many lenders won’t go higher than 75%.
While there is a small amount of activity at present, the introduction of greater competition and more pressure being applied by advisory firms, may make lenders think harder about moving up the risk curve in this area. And there’s the rub, because this is riskier business for lenders and one might hope, and even suggest, that greater risk requires a level of mitigation they might not have adopted for buy-to-let before.
While private insurance is widely used, particularly by building societies, it is not the default option for buy-to-let lenders on residential high LTV loans. The risk is clearly greater and there is insurance available which can give peace of mind and confidence to the lender while help meet adviser and client demand.
Even while the majority of buy-to-let lending is unregulated, there is bound to be regulatory interest in lenders offering high LTV buy-to-let loans and therefore using a mortgage guarantee will certainly provide that extra safety net for all concerned. It seems safe to say that buy-to-let will continue to develop and grow and, perhaps with the use of guarantees, it may also be able to enter the high LTV product space with more clarity and confidence.
