Bob Young is managing director of CHL Mortgages
Market activity in the buy-to-let sector has noticeably increased in recent weeks and, it will not take a genius to work out that this is all happening the closer we get to the introduction of the MMR.
Lenders are understandably keeping their cards close to their chests but again it should be quite obvious to all that the residential mortgage market is likely to see volumes fall back over the course of the next month or two.
The MMR has meant lenders have had to bring in a number of considerable system changes and the last thing they want is for their new processes to be exposed to undue strain.
It would not be a surprise if most of the bigger, mainstream lenders have been slowly and quietly taking their foot off the gas over the course of the past couple of months in order to cope in April and the immediate months thereafter.
From what I understand at recent broker events lender representatives have been making this residential lending pull back official and to that end I suspect we could see some significant pricing moves in the coming weeks.
Again, no lender is going to want to be inundated with business at a time when the practicalities of the new MMR lending rules have not been fully tested.
Which moves us onto what lenders might do to fill that drop off in residential lending levels while systems bed in?
I have been convinced for some time that those with the capability and the appetite for buy-to-let would look at the sector as a way to ensure overall lending targets are kept on track.
The closer we get to MMR, the more convinced I am of this. I hear of one of the biggest lenders in the sector telling brokers that they intend to increase their buy-to-let lending by 40% in 2014 compared to 2013 figures, and have no doubts that others in a similar position will be wanting to do the same.
Take a quick look at recent ‘buy-to-let news’ and you will see an increased focus on this type of lending from those who might traditionally not be thought of as major players.
Santander for Intermediaries for instance has recently loosened its criteria for self-employed landlords making it much easier for those with multiple buy-to-let properties to secure finance with them.
Is it a coincidence that these changes have been announced just a few weeks before MMR?
Also, we might be at the start of the process where lenders are reacting to the pension reforms announced in the Budget last month.
Many are predicting that new pensioners will be ‘filling their boots’ on buy-to-let properties in this new environment – although I remain to be convinced – and it seems obvious that TMW’s recent changes to its age limit criteria – whereby it has removed all upper age limits – is one of the first attempts to cater more for this potential increase in demand from those of a pensionable age.
It will be interesting to see what measures and approaches other lenders take to older landlord borrowers.
While the buy-to-let market is still predominantly dominated by a handful of lenders it looks likely that other smaller players will be increasingly looking to dip not just a toe but the whole leg into the waters.
Maximum LTV levels continue to creep up and, as shown above, criteria changes appear to be frequently announced.
Given the regulatory jolt that MMR gives to the residential market we should all be prepared for much more emphasis to be placed on the buy-to-let market – while lenders might not wish to compete too heavily on rates there is likely to be an increasingly ‘doors are open’ policy to those who might be considering buy-to-let but have either not made the move before or not been deemed suitable in the more recent past.
While I don’t envisage lenders bending over backwards to accommodate buy-to-let borrowers, with targets needing to be achieved, there is likely to be increased flexibility. Good news for broker’s clients I would suggest but, as always, there needs to be a note of caution here for both the continuation of responsible lending practices and an ongoing commitment to point out to clients that buy-to-let is not for everyone and there are always risks to be aware of. Let’s not ditch our duty of care in the face of increased interest in the sector.