How long before we see other buy-to-let lenders push their maximum LTVs above 80%?
Examining the issue in this week’s Market Watch are:
John Eastgate, sales and marketing director at Kent Reliance
Andy Young, chief executive of TBMC
Ying Tan, managing director, The Buy to Let Business
John Eastgate, sales and marketing director at Kent Reliance
The commercial attraction of high Loan to Value (LTV) buy-to-let mortgages is clear; the rewards of margin and fees are good, certainly compared to their residential equivalents. We also know that there is good demand for the right properties in the right areas, so lenders can confidently take the LTV risk.
But how likely are banks and other scale lenders to push their maximum LTVs above 80%?
There is little to suggest that they are interested in doing so. Their current agenda is risk mitigation, and limiting LTV is an easy way to achieve this. Risk taking is hardly en vogue in the banking sector right now.
Also, no-one wants to see high LTV products encouraging opportunistic market entry from first time or inexperienced landlords. Lenders should be wary of such borrowers taking advantage of low deposit loans without understanding the risks in buy-to-let and the time that managing an investment property can consume.
At Kent Reliance we know that our higher LTV products need to be supported by good working relationships with intermediaries who know their clients and can provide the right advice. This balances the risk: reward equation, such that everyone wins and here we can do our bit to help the buy-to-let market grow in the right way.
Andy Young, chief executive of TBMC
It is great news for the buy-to-let mortgage market that Kent Reliance is again breaking ground with these two 85% LTV products, and the initial charging rate enables most properties with a yield of around 6.0% to fit the required rental calculation.
Although these are currently the only 85% LTV products available, I do expect to see more competition at this higher lending level during the next 12 months, although it is unlikely to be a mass market event.
For example, I don’t think that building societies will currently be looking to enter the 85% LTV bracket as buy-to-let is not normally a core product for them, and they tend to have a more cautious approach to risk.
Any new product development at higher LTVs is more likely to come from specialist buy-to-let lenders, experienced in the sector and who are looking to expand their product ranges, meet the demand from landlords and capture a slice of the action.
I would also not be surprised to see a new lender enter at 85% LTV in order to carve out a niche.
There is definitely an appetite amongst property investors for 85% LTV products and these new products are already proving popular at TBMC. As geared investment often provides the best returns for landlords, further innovation in this area would be most welcome.
Ying Tan, managing director, The Buy to Let Business
With first-time buyers struggling to get funding and younger professionals opting for the flexibility of renting, rental yields have continued to rise.
The astute landlord is re-investing this surplus cash to expand his portfolio. The high returns and continued resilience of the buy-to-let market has made it very attractive to lenders.
New lenders continue to enter the market and the increased competition is encouraging more innovative and attractive products that have begun to push the boundaries on LTVs.
Kent Reliance’s 85% LTV products are leading the way. They offer a good proposition in a niche area and if their service levels can match their ambition then they will be a lender to look out for in the future.
There are five lenders currently in the 80% LTV space, The Mortgage Works, Clydesdale, Aldermore Mortgages, Leeds BS and Precise. Twelve months ago there was just one.
Lenders are becoming more confident as conservative valuations, rental coverage protection and steady house prices ensure they are not over exposed.
I see this movement to higher LTVs continuing as lenders look to differentiate themselves. It is only a matter of time before there are more lenders at 85% LTV.
