John Heron: Buy-to-let changes have played to the strengths of specialist lenders

Michael Lloyd

April 19, 2018

Buy-to-let changes including the stamp duty surcharge for landlords, mortgage tax relief and stricter underwriting for portfolio landlords have all benefited specialist lenders like Paragon, its managing director John Heron has declared.

Heron (pictured) said there’s been a realignment of competition in the market and lenders now fall into three categories: Those who choose not to compete in portfolio buy-to-let business either because of their systems or lack of experience, those with a limited buy-to-let proposition and specialist buy-to-let lenders like Paragon.

Heron said: “The impact on the market of the fiscal and regulatory changes has played very much to our strengths.

“Specialist lenders like Paragon cover the full range of facilities professional landlords acquire like limited company structures and different tenancy types.

“There’s a much better match between the product and criteria and professional landlord requirements.

“So you could take the view the drive from the regulator for a more robust assessment of portfolio landlord applications has played very much to the strengths of the specialist lending industry.”

Heron added that despite the buy-to-let market contracting, he’s seen an increase in activity from portfolio landlords, which is “entirely responsible” for expanding its lending.

He estimated that before the changes 5% of Paragon’s applications were from incorporated landlords, while now it stands at more than 50%.

He said: “I don’t think there’s a great deal of evidence the private rented sector has contracted but there’s certainly been some contacting in buy-to-let lending.

“But within that we think what we’re seeing is the professional portfolio landlord is accounting for a greater proportion of activity and that’s how we’ve increased our market share in a market otherwise under pressure.

“It’s entirely because of our capability and expertise around portfolio landlords. I think another one of the impacts is a reduction in the scale of activity from smaller scale landlords which has been picked up from the larger more professional landlords.”

Despite being upbeat Heron has seen fewer landlords buying properties than before the changes.

He added: “The rate at which landlords are buying properties with buy-to-let mortgages has reduced by about 40%. Prior to the changes you’d see 10,000 to 10,500 properties purchased by landlords every month.

“It’s now down to around 6,000 and shows no sign of increasing materially so that’s one quite significant change.

“We’re also regularly told by landlords that they are trimming their portfolios so selling some of their properties, particularly their lower yield ones.”

Heron said: “The changes have supported the government’s objective of a greater professionalisation of the private rental sector.

“We’ve seen a shift of activity away from smaller scale amateurs towards portfolio landlords and part of the evidence for that is the high level of incorporation from landlords, particularly in the purchase market.”

As well as realignment amongst lenders, Heron has also seen a similar trend among brokers.He said: “We’ve seen a greater concentration of that portfolio business in the hands of specialist intermediaries.

“The increasing complexity of buy-to-let means the intermediaries who serve the needs of those customers need a greater element of expertise and specialism than they previously did before the changes.”

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