The year has kicked off with many anticipating great things from the buy-to-let market, not least perhaps the Government who are putting a significant amount of faith in the private rental sector to fill the ‘housing gap’. All drivers point to a healthy buy-to-let mortgage market if supply is able to meet demand and, crucially, if lenders continue to show a growing appetite to lend in this area.
In years to come, 2012 may be viewed as the year when, for want of a better phrase, the worm turned and those lenders who had left the market following the Credit Crunch began to return again. I suspect that we have not seen the last of this momentum and, coupled with existing lenders increasing their appetites and also institutions entering who have never previously offered buy-to-let loans, the intermediary sector and their clients are again more likely to be better served in this coming year, than the one previously.
What we might term the ‘mainstream’ buy-to-let market is experiencing more competition than it has done previously and in order to move away from the field, we may begin to see not just pressure on pricing but also some small tweaks to criteria, and some nibbling away at arrangement fees. Indeed, this has already started to happen and, for any lender looking at entering the mainstream buy-to-let market now, there has been some small movement in all those areas that they will have to respond to.
Those, however, who are expecting existing (and any new) lenders to begin motoring up the risk curve and relaxing criteria to the nth degree, are going to continue to be disappointed. Just because we are in a much more competitive marketplace does not mean that lenders are going to start losing their heads and partying/lending like its 2006. At least I sincerely hope they are not. It is not a major fear of mine but it is always at the back of my mind that some in the industry may be afflicted by short-term memory loss and begin to think that lowering deposit levels and slashing rental income requirements is a sound way to conduct their business and bring in the applications.
There is much to be said for a responsible, functional and efficient buy-to-let marketplace where everyone understands what is required of them – be they lender, broker or client. Buy-to-let can still be a thriving and important part of the overall mortgage market without a return to the heady days of the past. It’s not what the buy-to-let market needs now or in the future.
That said, 2013 already has the hallmarks of a strong buy-to-let marketplace. Given all the demographical changes happening in the UK and the increasingly difficult marketplace for first-time buyers, renting privately is often the only option for many people’s housing needs. Our recent iteration of our landlord survey shows there is an appetite for existing landlords to continue to add to their portfolios, although there remains the issue of being able to acquire the funding to do this. Certainly, landlords will be looking at a property market which has house prices at relatively stagnant levels in most areas of the country, and will therefore be seeking to take advantage of property priced at these levels.
One suspects that we are also likely to see a small but not insignificant rise in the number of amateur landlords dipping their toes into the market for the first time this year. A recent report from estate agents, Kinleigh Folkard & Hayward suggested that its landlord customer base had grown in 2013 incorporating a far greater number of individuals in their 40s/50s and 60s who were investing in property as a means to supplement their pension. I suspect there will be much more of this type of thinking and, while professional landlords offer the bulk of private rental property to market, there will be considerably more amateurs with small numbers of properties available at the end of the year than the start.
Bob Young is managing director of CHL Mortgages