SLS In Focus: ‘I don’t see a mass exodus from buy-to-let’ – Moloney

Speaking to Specialist Lending Solutions, Moloney said that larger portfolio landlords were still buying properties and refinancing as they were “looking at ways of increasing yields”.

“We often see people doing high quality houses in multiple occupations (HMO), for instance with high quality broadband, ensuite bathrooms, and the demand for those properties is still strong.

“It’s still difficult for families to get on the property ladder and therefore they’re looking for high quality rental properties that can accommodate their needs such features as a garden, good proximity to schools and so on,” he explained.

Moloney continued: “I don’t see a mass exodus from buy to let but we are not playing in the amateur landlord space where they tend to have one or two properties at most.”

He noted that over the years landlords had been raising funds for “future purchases”, almost like a “war chest” so they could act quickly when opportunities arose.

Moloney said that there was more demand for bridging for buy-to-let refurbishment products, as people have either renovated to improve their property or want to improve them. He continued that energy efficiency was “one of the drivers” due to the “looming EPC deadline ”.

He said: “I think landlords are also a lot more conscious that their tenants want more energy efficient properties because they don’t want to be paying higher bills, so they are already making the simple improvements to start them along the journey.”

Moloney added that while there was uncertainty about upcoming EPC legislation, it was “going to come in at some stage”.

He said: “What we don’t know is if there are going to be any exemptions to the rules in terms of property type, but that’ll be clarified as it goes. But landlords have gone through numerous challenges over the years, and this is probably no trickier than anything they’ve seen before, and larger landlords are already aware of what’s coming down the line.”

ICR stress test will be ‘real challenge’

He continued that the “real challenge” was around the Interest Coverage Ratio (ICR) stress test, which means that lenders factor in the ability to pay an interest rate between 5.5 per cent or six per cent or a buffer in rental income of 125 or 145 per cent.

As interest rates have risen some lenders have increased their stress tests, which has put more pressure on landlords.

Moloney said that this has led to the development of products with higher fees and lower rates so “people are able to go out and utilise the ICR coverage because the majority of buy-to-let business is still on five-year rates”.

He continued: “Two or three months ago, we probably expected that base rate increases would be done by now and settled where they are. But there’s still that growing concern that if inflation doesn’t come down, we could see more base rate rises and  that could affect the cost of fixed rate borrowing.”

Moloney said that rates were “pretty competitive” currently and for a lot of people who completed five years ago in buy to let, there was “not as big of a payment shock as there is in residential”.

“I think the pricing you’re seeing today is probably there or thereabouts what we’ll see for the rest of the year,” he added.

PTs will become more important to brokers

Moloney continued that product transfers (PT) would “potentially be bigger than purchases” according to UK Finance figures, so this would grow in importance for specialist lenders.

He said that lenders were doing product transfers through brokers, and brokers had access to those deals.

“One of the challenges that comes up commonly is in the non-bank lender sector where they’ve securitized these assets and may not be able to do a straightforward PT, so you have to move them [customers] elsewhere,” Moloney said.

He continued that OSB Group offered PTs through all three of its brands and it had worked on improving the process as well.

Moloney said that it proactively contacted brokers several months ahead of the deadline to outline different options and the expiry date.

“We’re engaging with the broker to make sure they’re ahead of the game, and they know what’s coming down the line,” he added.

Moloney continued: “I think if you do PTs well, then brokers will start to look at that much more because you could have people stuck on quite high variable rates. If a lender is unable to do a product transfer, the payment shock could be quite intense.”

‘We work really hard with our brokers’

Looking ahead for the year, Moloney said that OSB Group was “really looking at is how we can keep building on improving our service”.

“We offer competitive products, a good proposition, good sales team and good underwriters, and we really value the relationship with our brokers,” he added.

Moloney continued that it was 100 per cent intermediary, and it was one of the largest intermediary-only lenders in the UK.

“We work really hard with our brokers. We listen to their feedback, and you’ll continue to see us provide reliable products and build upon our service proposition,” he noted.