Landbay would stand firm in the event of a severe economic downturn on its outstanding loan book, according to a stress test commissioned by the buy-to-let lender.
Landbay commissioned MIAC Analytics to provide an independent analysis of its £235m residential buy-to-let mortgage portfolio against the following scenarios: A recession with GDP falling by 5%, unemployment rising to 9.5%, house prices falling by 33%, base rate of interest rising to 4.25%, and CPI Inflation rising to 5%. The effects were measured over a 14-year period until 2032 and consider any need to repossess and sell-on properties due to defaults.
Under the stressed scenario Landbay’s losses would equal 1.83%, which the lender’s reserve fund would cover a portion of. The annual return to investors would drop from 3.5% to 3.13% per year.
John Goodall (pictured), chief executive of Landbay, said: “We’re very pleased with the results of this stress test as it demonstrates the robustness of our loan book and the strength of our underwriting process.
“We believe that undertaking these stress tests, and sharing the results, is the responsible thing to do. It supports investors as they seek strong, sustainable returns across economic cycles.
“We’ll continue to undertake these tests on an annual basis, with the intention of being fully transparent about the process and results to investors or borrowers, or anyone just trying to find out more about the business.
“We’re proud to do the right thing by investors and hope this will prompt others in the industry to follow suit.”
These tests are usually only undertaken by the UK’s largest banks and building societies to fulfil regulatory requirements.
The scenarios are designed by the Bank of England to explore the capital adequacy of the UK’s major banks and building societies.