It’s important to look at the whole picture around buy-to-let, argues Bob Young, managing director of Capital Home Loans
It’s sometimes difficult to establish what goes into the setting of the financial services media agenda at any given time. Barely a year ago, anyone who was looking for information and, dare I say it, ‘insight’ into what was going on in the buy-to-let market would have come across numerous articles and commentaries all pontificating on whether the sector was already in, or somewhere near, its death throes.
Of course, those who are hoping for a return to a time when buy-to-let seemed to suggest the accumulation of untold riches over a very short space of time, will have seen that particular ambition die a death. However, the point was (and still is) that buy-to-let was never anywhere near the brink of ‘croaking it’ – whatever that means – but it is certainly a very changed market from what it had become back before the Credit Crunch hit. And praise be for that.
To say the media have been somewhat ‘flat’ in terms of buy-to-let coverage over the past few years would be something of an understatement. However, the last couple of months seem to have brought about a revelatory turnaround. Clearly, the catalyst for this most recent reappraisal of the sector has been the reintroduction of Paragon to the buy-to-let market – and very welcome that is too.
New lenders such as Precise and Aldermore have also added to the perception that the buy-to-let market is back with a vengeance, when the true fact of the matter is that the change is still only slight, and we must all accept that existing and potential new landlords are still facing serious funding issues should they wish to purchase rental property in this new environment.
My point is that we are often faced with a media which is unwilling to settle on a half-way house the buy-to-let market is either six feet under or ‘the next big thing’ regardless of the fact that the truth is always going to be somewhere in the middle. For instance, Paragon’s return to lending is a great positive for landlords however at the very same time we had the announcement by Lloyds Banking Group (LBG) of its decision to lend on buy-to-let properties only through BM Solutions and to restrict borrowing to either three properties or £2 million of borrowing.
At a recent event The Mortgage Works (TMW) suggested it was pleased to see LBG pulling back from the buy-to-let market because it would be happy to fill the gap it would leave. However, landlords will certainly be nervous about LBG’s decision and they will wait to see if TMW puts its money where its mouth is before breathing a sigh of relief if it fulfils that commitment.
What we do know is that the drivers for the buy-to-let sector continue to look strong, notably the coalition government’s deep-seated hope that the private rental sector will be able to fill the current ‘housing gap’. Not forgetting the continued difficulties for those looking to purchase their first home – we should not be surprised that in this environment rents are on the rise.
Advisers may already be seeing an upshift in buy-to-let business because of this. Paragon’s own Adviser Confidence Tracking survey suggested that, in quarter three this year, almost one in five of all mortgages were buy-to-let cases. A figure that sounds impressive but should be surely tempered by the much lower levels of mortgage business being completed at the moment.
Therefore the buy-to-let market does appear to be in much ruder health than it was just 12 months ago, however, the major mortgage issue remains one of funding and lenders’ appetite. There may be opportunities aplenty out there for landlords at the moment, particularly professional, portfolio ones, but the fact remains that securing the funding to take them is still the major sticking point for many. Paragon and the new lenders will add some capacity but we should not believe it is enough in the current climate, certainly when we see the major buy-to-let players rethinking their own commitment to the sector.
Of course, with Paragon’s re-entry to the marketplace, speculation has continued to fall on when CHL will make its return. Regardless of what you read the situation remains the same we continue to look after our very successful £6.3 billion book and 42,000 accounts and wait to see what will happen in the capital markets.