Green deal
This is the Government’s scheme to improve energy efficiency of the nation’s housing stock and the encouragement of renewable energy generation measures. The proposed scheme will be available next year, and is open to the private rented sector. When the Energy Bill becomes law, we will let you know how this will affect landlords. More information can be found on www.decc.gov.uk. You may have read various reports in the press and seen on television, and as the details become clear we will pass these onto members, and add to our website.
Barclays relaunches new Buy to Let product range
The bank will offer a 2-year fixed rate Buy-to-letproduct at 5.29% and a 2-year tracker at Bank Base Rate +3.99%.The 10-year residential mortgage will be available with a fixed rate of 4.99% and a fee of £1,499.Buy-to-let loans from Barclays will also have a tiered fee dependant on loan size.Loans between £50,000 and £125,000 will have a fee of £1999.Between £125,000 and £250,000, loans will have a fee of £2999.Over £250,000 the fee will remain at £3999.Barclays will also cut its 3-year fixed rate 90% LTV mortgage by 0.25% and increase its 2-year fixed rate 90% LTV mortgage by 0.25%.All of Barclays’ trackers and offset mortgages will also increase by up to 0.21%.Andy Gray, head of mortgages for Barclays, said: “Today’s mortgage changes are about boosting the availability of buy-to-let and providing competitive longer term deals in the residential mortgage market with the launch of a 10-year deal to support borrowers who are worried about the long term base rate outlook.”
Have we reached the buy-to-let tipping point?
This year has certainly been a good one for buy-to-let: lending is up, investor interest is high and the sector has enjoyed more than its fair share of positive press headlines.
In addition, the Council of Mortgage Lenders’ (CML) Q3 figures showed a year-on-year 39% and 46% increase in the volume and value of buy-to-let gross lending respectively.
The market has recovered well from the nadir of 2009 and its resilience should be celebrated. The sector has written the same level of business in the first nine months of the year as it did for the whole of 2010.
However, whilst the latest figures are extremely impressive, we have to remember that they are still starting from a low base and further substantial growth will be necessary to meet the high levels of tenant demand.
Based on the CML’s figures, I would expect gross lending for the year to be in the region of £13bn to 14bn and Paragon’s view is that the sector can sustainably accommodate between £25bn and £30bn of lending a year.
How long it takes to get to that point is the key question, but is a very difficult one to answer.
Once bitten…
What is certainly clear is that the buy-to-let sector needs to avoid the mistakes that were made leading up to the market’s peak in 2007. This period was associated with too many lenders, brokers and investors engaging in unsustainable and imprudent practices.
It was a period that saw a rapid growth in the activities of property investment clubs, the scourge of traditional buy to let, and one which attracted property speculators rather than landlords with a long-term outlook.
The market’s recovery needs to be measured and sustainable. Fortunately, lenders appear to have learnt from the excesses of 2007 and I believe it is unlikely that we will return to those days. Yet, it is vital for the reputation of the sector, in addition to the health of the private rented sector, that the loans written today are affordable in higher interest rate environments.
However, saying that, buy to let needs a greater level of innovation. Lenders have been keen to enter buy to let, because of the attractive margins and strong credit quality it offers. We have seen several lenders, both new and old, enter the market during the past 12 months and I expect more to do so in the coming months.
Diversity needed
Despite this, it is clear is that the increase in lender numbers has not yet delivered too much in the way of product innovation. Too many products are focused on smaller-scale landlords and it is a crowded market in the sub-75% LTV arena. The market is bunching around an active, but limited, customer group and there is only so much demand in this area of the sector.
If you are a landlord with one or two properties, let to standard tenants and want a low-LTV mortgage to choose from, you have a competitive range of products on offer.
If you are a professional landlord who wants to acquire a more complex buy-to-let property or wishes to let to students or housing benefit recipients, your choices are limited.
We need lenders to start considering the spectrum of landlord types before buy to let can reach its full potential; lenders may well benefit from understanding better the needs and quality of portfolio borrowers.
On the whole, they are successful business people who present strong creditworthiness, as long as the borrowing is underwritten correctly. Another factor that will dictate the pace of buy-to-let’s recovery is, of course, mortgage funding.
Euro concerns
The eurozone crisis has undoubtedly knocked confidence recently and caused financial institutions to become more risk averse. However, there is a stark difference between what is happening now to what happened in 2007, when the capital markets closed and remained closed for some time.
Today, the capital markets are still open to UK lenders. Certainly, these markets are extracting their pound of flesh, but we find that the cut is not as deep as we might have thought possible.
Kensington, Lloyds TSB, Royal Bank of Scotland, Clydesdale & Yorkshire have all tapped the money markets in recent weeks, with a wide range of real transactions. In addition, Nationwide, The Co-Op and Santander have also carried out transactions. Paragon also launched its first transaction since 2007, notably with newly originated buy-to-let assets.
This is positive, but the level of funding is still not sufficient to satisfy all areas of the lending market. That is why, although we have seen a boom in tenant demand, driven by both long-term and short-term factors, this demand is unlikely to be met by the buy-to-let sector in the near future.
There are constraints when lending to the landlord community, as there are in all sectors of the lending market. The current growth in lending and property purchase by landlords is not currently matching the growth in tenant demand. Whilst this is frustrating today, it is positive for the long-term health of the buy-to-let market.
Fundamental shift
The profile of the UK housing market is changing and the private rented sector is the only growing tenure type. The UK’s rental sector is small compared to some of our European neighbours, most notably Germany, and many indicators suggest that the sector will become considerably larger.
This is a long-term shift and will be matched by steady growth in buy-to-let lending. This is why EU legalisation, such as its residential mortgage directive, needs to be considered carefully.
The inclusion of buy to let is not appropriate, because landlords are not consumers, they are business customers; the risks to them and lenders are very different. The legislation is designed to protect consumers borrowing against their own home and so much of it makes little sense to the buy-to-let market including key elements such as; the European Standardised Information Sheet, the provisions for underwriting consumer credit and the treatment of borrowers in default.
Aldermore has increased LTV for buy-to-let products from 75% to 80%.
The lender is also raising its maximum buy-to-let portfolio size from three properties and a lending ceiling of £1m to five properties and a ceiling of £2m, as well as reducing its buy-to-let reversion rates by as much as 0.5%.Charles Haresnape, managing director of residential mortgages at Aldermore, says: “We’re very comfortable with the way our buy-to-let portfolio is performing and feel the time is now right to strengthen our range