Why I welcome competition in the buy-to-let market – Young
Go back less than a year to the first lockdown and that confidence had undoubtedly drained out of the market, particularly if you were a non-deposit taking lender reliant on the capital markets for your funding.
Take it from someone who knows.
With the capital markets effectively closed, and with lenders like ourselves in a situation where new business could only go so far through the pipes without a physical valuation, this was a period of great uncertainty.
Anyone in a similar position who says they were not concentrating on survival back then, is either lying or had their priorities all wrong.
However, we’re all acutely aware of how quickly the picture can change.
Now, eight or so months on – and even with the existing horrific Covid situation – we are incredibly lucky to be working in a sector which is open for business, and where a strong second half of 2020 has set us all up for a more positive outlook.
We should all be incredibly grateful for that and confidence has clearly grown fuelled by increased tenant demand, landlords’ greater appetite to add to portfolios and access to quality finance arrangements.
Not forgetting the boost the stamp duty holiday has provided.
Capital market confidence
If you want evidence of that greater confidence look no further than the capital markets and new lender entrants.
Those working in other sectors often wonder why there is not more infighting between lender competitors in the buy-to-let space.
It’s pointed out that this is a highly competitive market and they would anticipate far more ‘argy bargy’ so to speak.
I tend to answer that a) we have all known each other for a very long time which gives a mutual respect, and b) we’re essentially benefiting from that competition and what it engenders.
The truth of the matter is that this sector works best when many players are thriving, particularly when it comes to investment in residential mortgage back securitisations (RMBS) and, of course, the ability to secure funding to lend in the first place.
Funders want to see exit strategies played out to a successful conclusion.
Virtuous circle from funders
So when, for example, Keystone announces a £400m securitisation achieving a price of Sonia plus 95 bps for AAA notes, funders of lenders like Fleet gain confidence in our ability to securitise.
Thus we get a virtuous circle whereby greater interest is generated not just from existing funders but also those seeking the same opportunities.
And when, for example, you have new lenders like LendCo coming into the market or you hear your peer group talking like you about the greater levels of lending they plan to achieve in the year ahead, this all adds to an environment which can be beneficial to all stakeholders – not least advisers and their landlord clients.
In other words, why would you carp from the sidelines at competitors being successful when it drives you to achieve and also gives everyone around the sector far greater confidence in what you’re currently doing, and what you might do in the future?
It is a win-win.
So, many congratulations to Simon Knight at LendCo and David Whittaker and the team at Keystone.
Let’s hope that is the first of many such deals throughout the year, and let’s seek to make this an excellent year for everyone involved in buy to let.
Fleet promotes Steve Cox to CCO
Fleet said Cox will now take on the ‘wider brief’ that comes with this more strategic role, with responsibility for the commercial element of all the lender’s activities.
The lender said Cox had already proven his worth to the business having helped transform, increase and develop Fleet’s distribution partnerships, adding that his focus is now across the entire business focusing on the strategic and commercial elements required to deliver further growth.
Cox joined Fleet Mortgages in November 2018 from Hodge Lifetime where he was business development director, which followed his time at Sesame as head of commercial development.
Bob Young, chief executive officer at Fleet Mortgages, said: “Steve has been absolutely key to our success over the last two years and helped shape and guide the business through what has often been a very tricky environment. This new role is testament to the work Steve has carried out, the influence he has at Fleet and in the wider mortgage community, and how we intend to move forward.”
Young added: “Every decision we make as a lender has a number of elements to it – credit risk, mortgage processing and commercial, and Steve will be responsible for helping us to continually develop the commercial plan for Fleet.
“To be fair, he has undoubtedly already been doing this for some time and we are very pleased to make this promotion official and to begin the new year with such positive news.”
In December, Fleet reintroduced a maximum loan size of £2m, up from £1.5m up to a 65 per cent cap on its standard and limited company buy-to-let range. This is not applicable to properties above or adjacent to commercial premises, or houses in multiple occupation (HMOs) and multi-unit blocks (MUBS).
And for HMO and MUB landlords, Fleet is reducing the time the primary applicant must have owned a standard buy-to-let, HMO or MUB property down from two years to one.
Fleet CEO Bob Young received the ‘Outstanding Contribution’’ award at the 2019 British Specialist Lending Awards.
Fleet ups maximum loan and cuts required landlord experience
The lender said it did not believe the changes would increase its risk but would allow it to service more customers.
It is re-introducing a maximum loan size of £2m – up from £1.5m – at a maximum loan to value (LTV) of 65 per cent on standard and limited company buy-to-let product ranges.
This is not applicable for properties which are above or adjacent to commercial premises, or houses in multiple occupation (HMOs) and multi-unit blocks (MUBS).
And for HMO and MUB landlords, Fleet is reducing the time the primary applicant must have owned a standard buy-to-let, HMO or MUB property down from two years to one.
The new criteria are effective immediately and Fleet said these changes would be the first of several it will be making more to be announced in the new year.
Steve Cox, distribution director of Fleet Mortgages, said: “The criteria changes we are announcing today, in our view, do not increase the risk to the business, will not impact on the quality of the applications we receive, but will allow us to reach out to more landlord customers at a time when demand is growing.
“So, we’re very pleased to be increasing our maximum loan size and reducing the experience required by HMO or MUB applicants as we believe this gives advisers further options for those landlord clients who fit this particular bill.
“Our aim as always is to listen to our intermediary partners and respond where we can, while ensuring our excellent service levels are maintained, and we continue to operate responsibly.”
Cox added that the changes in the pipeline would also Fleet to broaden its lending reach.
Specialist lenders working with capital markets to accept remote valuations
However, although the lenders noted progress has been made, there is unlikely to be any change in policy during the current coronavirus wave.
While all mortgage lenders were affected by the cessation of in-person valuations during the first lockdown earlier this year, those who are solely funded through capital markets and funding lines were particularly badly hit.
They were unable to introduce remote solutions or automated valuation models that banks and building societies were able to use to take some of the strain off their caseloads.
‘Little appetite for change’
Speaking on the latest Brightstar video debate, Fleet Mortgages distribution director Steve Cox said: “For those of us that rely on capital markets and funding lines the honest and brutal answer is there is currently no alternative to physical valuations.
“That isn’t likely to change fast. It’s not a Fleet thing or a Keystone thing, it’s not even funders objecting to it.
“It is other people in the chain of securitisation that just won’t accept anything other than a physical valuation.”
Keystone Property Finance CEO David Whittaker explained the reason for this was a result of interventions following the credit crunch put in place in the USA, and while there was hope, it was still some way off.
“There’s little appetite currently from the capital markets to change that,” he said.
“We all did a lot of work during the first phase of lockdown to change the capital market’s view and that’s an ongoing project because we see it will come round again in different forms, so not automated valuation models (AVMs) but remote valuations.
“Tony Ward chairman at Landbay did a lot of good work on it and it’s a project we’re all working on, but we haven’t been able to land it in time for this round two.
“But you’ve got to expect there will be variations of this virus going forward and therefore having a remote valuation solution maybe possible but not in time to help us out in this current cycle.”
Cox added that it any alternative to physical valuations was more likely to come in for the remortgage market, when it was less important to the client to have an in-person viewing.
Limits on specialist lending
OneSavings Bank sales director Adrian Moloney also joined the panel, hosted by Brightstar CEO Rob Jupp.
Moloney noted that while such a move would be important for non-bank lenders, there were still many situations where on physical valuations could work.
“In the specialist market there are still great limitations on what a desktop valuation can give you,” Moloney said.
“In the markets we all play in there’s freehold blocks, there’s houses in multiple occupation (HMOs), there’s certain new builds that desktops can’t pick up.”
He noted some banks may start using the technology, but it was unlikely to be suitable for vast numbers of cases.
“It would be a very different prospect in terms of getting desktops switched on in the specialist market now with the volumes of people who want to purchase or refinance properties,” he said.
“I think valuers are doing a really good job keeping us informed.
“We’ve got to keep really patient with them, it’s taking about five or six days to get appointment booked in with clients so a survey takes a bit longer but it’s for brokers to help manage clients and us to be transparent about turnaround times,” he concluded.
Mid-January likely BTL cut-off for stamp duty deadline but strong 2021 ahead
However, lenders have emphasised there could be regional variations in this timeline depending on how valuations are affected by lockdown measures and if case volumes increase.
Warnings are being issued already in the mainstream residential market that prospective buyers should have started the process by early November to be sure of meeting the deadline.
And despite lobbying from conveyancers and other trade bodies for some flexibility, housing minister Christopher Pincher said there would not be an extension to the deadline.
But the specialist buy-to-let sector is not currently suffering the delays and service level issues hitting the residential market.
Ten weeks before deadline
Speaking on the latest Brightstar video debate, Keystone Property Finance CEO David Whittaker said he thought he would start to warn borrowers in the “second or third week of January”.
“It’s probably not in our segment where the pain is, but we could feel the pain going forward. As long as we’re honest with people that’s all we can ask,” he said.
“I think towards the middle part of January we’ll start running up the chequered flag and saying to people, you’re now taking a risk because this sort of transaction will take X number of days.
“Are your lawyers on top of it, if they are we can get there.”
He added that the end of March would be difficult to control for lenders because the transaction was out of their hands as it got closer to completion.
Brightstar CEO Rob Jupp agreed and urged lenders to be clear in their communications on the subject.
“I think mid-January is spot on,” he said.
“I’ve written if you’ve got less than 10 weeks to complete a new transaction in what is historically quite a busy time of year in Q1… there’s a whole part of the process that may not have enough room.”
Bumper year for brokers
Fleet Mortgages distribution director Steve Cox and One Savings Bank sales director Adrian Moloney both agreed there was no need to panic for the buy-to-let sector at present.
And the trio of lenders suggested that 2021 should be a good year for business in the sector even after the stamp duty holiday deadline.
Whittaker noted that along with macroeconomic conditions, 2021 is the five year anniversary of George Osborne’s stress testing rules introduction so there will be a surge in remortgage business towards the autumn.
“It might go a bit flat into Q2, then Q3 should see a bit of a pick-up and Q4 should be as strong a Q4 as we’ve seen in many years,” he said.
Moloney added: “For brokers it’s going to be a big year because people’s circumstances have become more specialist.”
Advisers should prepare their clients for any type of rate eventuality – Young
However, during those past 20 years, I cannot recall – even during the Credit Crunch and subsequent recession – a time when it was having to tackle some of the huge challenges it now faces.
Bank Base Rate (BBR) is central to this and even with the rate at a record low at the start of the year, it didn’t stop the MPC cutting it further to where it now currently sits at 0.1 per cent.
Part of the challenge within the mortgage market is highlighting to borrowers that a BBR of 0.1 per cent does not translate to rates of similar levels.
This is particularly when the ability of many borrowers to pay their mortgages is going to come under increasing pressure, specifically when the furlough scheme ends but even now as firms have to decide whether they can continue to function and what happens to their staff.
That said, with the BBR at 0.1 per cent there has been a growing interest in whether the next step could be for the MPC to take the rate into negative territory.
A point where it would charge banks to hold their reserves.
Advisers must explain
There appears to be a difference of opinion already among those on the MPC.
Whether this remains a step too far or not, it is indicative of the unique situation we all find ourselves in that this does appear to be a credible option for the bank.
There’s no doubting that BBR is a huge marker in terms of what is being done to stimulate the UK economy, and it’s a long way from those time periods when the MPC simply ratified the status quo month after month.
Given the talk around negative rates, advisers probably have a job to do here in terms of explaining what a potential negative BBR would mean for borrowers.
The answer is not a great deal in terms of their mortgage rates as they are still going to be in positive territory.
But if the logic above is followed through, then lenders might theoretically have a greater appetite to lend because the bank will be charging them for the money they keep on deposit.
Perhaps this could be good news for borrowers?
That would certainly be one of the outcomes the MPC would want to see if it dropped BBR into negative territory.
However, there is much to consider here, not least whether lenders’ appetite to lend would be shifted when we are all considering the economic impact on affordability and the ongoing ability of borrowers to pay.
Not to mention what savers will make of the situation.
It seems unlikely – at least in the short-term – that BBR will be moved below zero but this crisis has shown that those in power can’t afford to take any options off the table and they need to think the unthinkable and take decisions which would have been considered incredible just eight months ago.
We should therefore all prepare for any type of rate eventuality, and prepare our clients and borrowers for what this could mean for them, because they may be anticipating a period where their lenders start paying them, rather than the other way around.
And that simply is never going to happen.
Rent yields rise in seven out of nine English regions
In the lender’s quarter three Buy-to-Let Rental Barometer, which analyses rents in the regions Fleet lends to, yields in the North East rose the highest with a two per cent increase year-on-year to 8.8 per cent.
East Anglia and the West Midlands followed with rises of 0.8 per cent and 0.6 per cent, taking yields in those regions to six per cent and 7.2 per cent cent respectively.
The only two regions that experienced a negative change were the North West and East Midlands, where yields dropped 0.2 per cent and 0.1 per cent to 7.8 per cent and 6.8 per cent respectively.
The results are a notable contrast to quarter two when only three regions posted positive rental yields over the period.
National yield up
Overall, the barometer shows rental yields on residential buy-to-let properties of 6.4 per cent across England, up 0.4 per cent from the 6 per cent achieved in the third quarter of 2019.
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “It’s clearly positive to see the majority of regions in England posting increases in rental yields, and those regions which have showed a very slight dip were already at relatively high levels to begin with.
“We learnt from the post-credit crunch period over a decade ago that rents are not as susceptible to a recession as property prices, with many occupants more willing to opt for the shorter-term financial commitment offered by renting than longer-term property ownership.”
Cox said how yields performed in the coming months would give a better idea of how sustainable the current buoyancy of the rental market is, with unemployment expected to rise.
But early indications from Fleet’s analysis did not point to sharp falls in yields.
He added: “What we may see is further structural changes in rental demand particularly in urban centres with tenants who can now work from home feeling they are no longer tied to a property near to the office, and may look further afield where they might get more for their money.
“However, we have not yet seen any evidence to suggest this is becoming a trend.
“Within a shorter time-frame, the fact that, in England at least, the stamp duty holiday is available to landlord borrowers has undoubtedly been a factor in the increased interest in property investment purchases, with both new and existing landlords looking at the opportunities available and seeking to secure the savings that are available from the holiday.”
Fleet and Nucleus make senior appointments
Fleet Mortgages has appointed Louisa Ritchie (pictured) as key account manager. She will be responsible for managing the lender’s partnerships with existing accounts and identifying opportunities with new network and distribution partners.
Ritchie has more than 25 years’ experience in the financial services industry working for lenders, advisers and distributors.
Her most recent lender roles include her position as national account manager at lenders Together and TSB. She worked for Together for one year and was at TSB for three years.
Fleet has also added two telephone business development managers (TBDMs) to its team this month.
John Gorard will be TBDM for the South East after a two year stint for Castle Trust as its business development executive. Sarah Bowen has been made TBDM for the South West, having previously held both BDM and advisory roles.
Steve Cox, distribution director of Fleet Mortgages, said: “Our aim at Fleet is always to ensure we have quality individuals working directly with advisory firms and strategic partners, so we are very pleased to announce Louisa’s appointment as she arrives with vast mortgage market experience and a great reputation.
“This is a highly important part of the market and we want to ensure that as many advisers as possible have access to our buy-to-let products and services.”
Nucleus Commercial Finance
Nucleus Commercial Finance has hired Andy Bird as business development director of property finance.
He has 30 years’ industry experience and will be tasked with developing a new property proposition for the lender.
Bird joins from Santander where he was relationship director for real estate for six years.
In this role with Santander, he was responsible for a portfolio of 140 real estate clients across the Midlands and South West.
Prior to this, he worked at Barclays as head of the corporate team for Herefordshire and Worcestershire, and HSBC as senior relationship manager.
Bird said: “I’m looking forward to being able to use my extensive industry experience to shape a new proposition and further develop Nucleus’ property product suite.
“At a time when many businesses are looking for alternative sources of funding, I’m excited to work with Nucleus to help it expand its offering to its network of brokers, introducers and ultimately their clients.”
Chirag Shah, CEO of Nucleus Commercial Finance, added: “With the Coronavirus Business Interruption Loan Scheme (CBILS) soon coming to an end, many businesses will be looking for secured longer-term lending, and Andy’s appointment is testament to our commitment to this part of the market.
“Andy brings many years of industry experience, having worked at several of the biggest players and he will be central in supporting the growth of our property finance product.”
Fleet cuts rates and launches lifetime tracker range
Standard buy-to-let deals have been cut by five basis points with rates now starting at 3.19 per cent for two-year fixes up to 60 per cent loan to value (LTV).
At 70 per cent LTV rates now start at 3.29 per cent and at 75 per cent LTV rates start at 3.44 per cent.
Fleet is also offering five-year fixed-rate products with rental coverage calculations of both 125 per cent at 5.5 per cent and 125 per cent at pay rate.
Rates start at 3.54 per cent for five-year fixes at 60 per cent LTV, 3.59 per cent for 70 per cent LTV and 3.69 per cent for 75 per cent LTV.
Standard and limited company deals revert to the Bank of England Base Rate plus five per cent and deals for houses in multiple occupation (HMO) or multi-unit blocks (MUBs) revert to the base rate plus 5.25 per cent.
The specialist lender has also expanded its range of buy-to-let deals with the addition of lifetime tracker mortgages that have no early repayment charges.
Rates start at 3.3 per cent for standard and limited company mortgages and 3.46 per cent for HMOs and MUBs.
All tracker deals come with a rental calculation of 125 per cent at 5.5 per cent and a two per cent fee.
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “Cutting the prices of all our standard and limited company products makes them even more attractive and we’ve been able to do this because of the strength of our relationships with our funders, and their appetite to be active in the UK buy-to-let space.
“We are also changing all our revert rates to track the Bank of England Base Rate which will be easier for customers to understand and provide extra clarity for advisers when explaining our product options.
“In doing this, it has opened up our ability to launch a brand new range of lifetime trackers across our three core product ranges, which, given they come with no early repayment charges at all, will I’m sure be of interest to many landlord borrowers.”
Time running out for landlords to take advantage of stamp duty holiday – Young
But delve a little deeper into the call from Mortgages for Business to landlords to do just this and you’ll see that there is plenty behind the headline to justify those investors getting their houses in order right now if they want to complete by 31 March 2021.
Not least of course is the process they will need to go through when they have found a property they want to put an offer on.
There is no doubting that everyone will be working flat out in order to achieve completion by that date, and there are clear historical precedents for when the entire industry did just that.
You only need to go back to 2015/16 when the three per cent stamp duty surcharge was about to be introduced, to see the increase in demand, landlord activity, and in pressure on property professionals to get these sales over the line before the extra charges kicked in.
Not the same scenario
However 2020/21 feels a lot to different to back then.
We are barely out of lockdown, many firms are still not at full capacity, thousands of people are not in offices, many are still furloughed, and there is uncertainty about second waves, local lockdowns and what this might mean for moving property sales through the system.
You might also have seen the recent suggestion, from the Conveyancing Association based on the average time of marketing to completion, that a property would need to be up for sale by the end of September in order to complete by the end of March and thus secure the stamp duty saving.
I suspect that’s an average taken from previous years, not this one.
The good news however is that, based on initial activity levels post-stamp duty announcement, landlords are not being deterred by this, although their expectation that a sale can be completed is going to need to be matched by reality.
Advantage may slip away
As Mortgages for Business pointed out, while supply of homes for sale should improve over the coming weeks and months, this does not necessarily favour landlords as the current situation may do now.
We were already seeing an uptick in remortgage activity immediately post-lockdown – before the stamp duty announcement was made – which seemed to show that landlords were literally gearing up to add to portfolios anyway.
If they have that finance in place, the ability to secure a property now will clearly put them in a strong position in terms of making offers and having them accepted.
As supply increases, and residential owners get to grips with their own needs and purchase options, that ready to move quickly advantage may slip away.
There are other existing advantages for landlords right now that may not hold forever – namely strong competition from buy-to-let lenders, keen pricing and broadening criteria, plus current property valuations which may begin to inch up the further along we move.
From our perspective, there is a strong desire to help as many landlord borrowers as possible to secure their remortgages/purchase loans in order to help them achieve a stamp duty saving and to do everything we can to get them to completion well in advance of the deadline.
The ability to do that will however rely on the market looking more normal for the next seven months or so, and for no significant Covid-19 related setbacks.
This is truly the great unknown and, as advisers active in this market, there is therefore no reason to hold back on a message that mirrors that of Mortgages for Business.
The time for landlords to act is now.