BTL2023: Specialist non-bank BTL lenders have ‘strong proposition’ and could be acquisition targets – Sedgwick

Speaking at The Buy To Let Forum in Bolton, Louisa Sedgwick (pictured), Paragon’s recently appointed commercial director for its mortgages division, said that as many specialist non-bank buy-to-let lenders focused on specific niches, were “nimble, innovative and…had relatively new tech”.

“If you look at them [specialist non-bank buy-to-let lenders] in isolation without the funding piece there, they’ve got a real good strong proposition. The funding is the problem,” she noted.

She added that there could be more high street banks eyeing acquisitions in the specialist space and these non-bank lenders could be “bought up”, pointing to the purchase of Fleet Mortgages by Starling Bank and Kensington Mortgages being acquired by Barclays.

“I think what you might see is some banks thinking ‘we want to get into this space so we will buy some of these [non-bank] lenders’,” Sedgwick noted.

She added that this could bring “new innovation, creativity and lots of money into the market as well”.

Sedgwick said that the securitisation market was “pretty much closed and has been for some time”.

“There are some securitisations that are getting done, but it’s really expensive. So, for somebody to securitise a book it needs to be a minimum £250m so they’ve got to have to written quite a lot in the first place, and they’re not getting them away at particularly good rates. It’s not necessarily the best way to market for them but there aren’t that many alternatives.”

Brokers should prioritise lenders that offer product transfers

Simon Cockerill, head of intermediary sales development at OSB Group, said that brokers should “absolutely” look for lenders that offer product transfers.

He noted that there were a lot of product maturities this year as cohort of borrowers from 2016 were coming to the end of their deals. He explained that many borrowers fixed for five years in 2016 due to stamp duty changes, tax changes and new PRA rules coming into force.

“It’s a big market [fixed rate maturities], and absolutely, longer term go look for a lender that has that product transfer option because it gives you the ultimate flexibility,” Cockerill said.

Sedgwick agreed, but noted that there were differences between non-bank and bank lenders in terms of being able to offer product transfers.

She explained that bank lenders, under PRA rules, did not necessarily have to use an ICR calculation when a borrower came to the end of their fixed term, so product transfers and remortgages are a “bit easier”.

However, with non-bank lenders, due to the way they securitise their mortgages if a customer wants to remain with that lender they would have to buy back the mortgage and re-underwrite it. This means having to stress it using the ICR calculation.

She said that non-bank lenders in this respect were at a “massive disadvantage” as “not only is the transaction really hard…but it might necessary still fit in the way that it did when the customer came to them five years ago”.

Landlords are not in a ‘wholesale selling situation’

Cockerill said that landlords he had been speaking to were not in a “wholesale selling situation” and were actually acquiring properties if they could.

“What they are potentially doing is mixing sort of stock that they have. So, there is a move into areas like semi-commercial, but we are not seeing a mass exodus amongst professional landlords.”

Sedgwick said that lenders should examine succession planning within the buy-to-let sector and build a community to ensure properties stay within the private rented sector.

She noted that around 500,000 properties could come back onto the market in some capacity but this “might not be a bad thing”, as these could be bought by other landlords.

Sedgwick said that, for example, a landlord with 20 properties who is in their 70s, who had planned for them to be inherited by their children, but whose children don’t want them, may be able to sell to another landlord who might want to purchase them.

She said it was a question of seeing how lenders could create that community where those properties “stay in the private rented sector”, and lenders needed to think about engagement with brokers and landlords to build these communities.

“We’ve got an affordability issue, first-time buyers cannot afford to buy some of the properties that are coming onto or may come onto the market. So, they need to be retained in some capacity.

“I think innovation within succession planning and making sure that we retain those properties within the PRS is critically important,” she noted.

The Buy To Let Forum is continuing in Worcester, Cardiff and West Sussex. To find out more information follow this link.