Dominance of five-year fixes will trigger buy-to-let market contraction – TBMC

  • 07/08/2018
  • 0
Dominance of five-year fixes will trigger buy-to-let market contraction – TBMC
The surge of landlords taking-up five-year fixed rate mortgages will see the buy-to-let mortgage market contract over the next three years, TBMC managing director Jane Simpson has warned.


Simpson also highlighted a gap in the market for refurbishment finance products, that lenders had improved their portfolio buy-to-let offerings, and that she expected more lenders to join the limited company market.

Speaking to Specialist Lending Solutions, she noted that TBMC had seen a large increase in the volume of five-year fixed rate deals now being completed by landlords and said this was typically down to affordability restrictions.

“It’s at least 50% of our business now,” she said.

“Landlords and their brokers who come to us are not looking for that long a term originally, but when you look at the calculations to afford the loan they need to do it that way.

“There’s a lot of business going that way and it will contract the market for the next three years because so many landlords are stuck on these five-year fixes.”

Earlier this year Specialist Lending Solutions revealed the Prudential Regulation Authority (PRA) was conducting a review into the growing use of five-year fixed rate products.


Portfolio lending improvements

However, Simpson was generally positive about the buy-to-let market, noting that lenders had improved now that the portfolio lending rules had settled in.

“They are meeting more in the middle on the PRA requirements – it was a case of them finding feet, but we’re quite confident we understand what each lender wants,” she said.

“Lenders recognise the need for a spreadsheet or technology solution and putting questions on application forms instead of needing business plans and cash flows as made it more digestible.”

As with most in the market TBMC has seen the proportion of limited company cases grow significantly over the last year from around 5% to now roughly 25% of business volumes.

The number of calls being received suggests this is likely to continue growing sharply with landlords and investors setting up the groundwork for completing a future move into limited company.

And lenders are recognising this demand.

“A lot of lenders are considering entering the limited company market,” Simpson said.

“If they don’t have that now I expect they will come in soon.

“Many of these are likely to be smaller building societies and so a lot of the difficulties in entering the market can be system driven,” she added.


Creative and complex

Landlords are also becoming more creative and complex in their search for yield, either changing the types of property they own, where they are investing or taking on properties which need renovation.

This has highlighted a need for refurbishment finance products.

“There is a gap in the market for refurbishment loans – that area of the market is a little underserved, especially the specialist products,” Simpson said.

“A lot of products need the property to be let-able at the start and the owner then has three months to do the renovations.

“Instead we would look to do a bridge and then remorgage,” she added.

As a result of this growing demand, TBMC is looking to extend its bridging panel to reflect the landlord requirements and include more lenders that are entering with relevant offerings.



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