The constant vilifying of buy-to-let
Tony Ward is president and chief executive of Clayton Euro Risk.
Buy-to-let was back in the press last week with the Council of Mortgage Lenders’ (CML) latest figures showing that the number of investors leapt 35% in November from a year earlier.
The CML said the rise took the number of buy-to-let loans to 23,300, although this was down 6% compared with October. This flurry of activity is hardly surprising with landlords in England and Wales having to pay a 3% surcharge on each stamp duty band from April.
With buy-to-let firmly on the agenda, I want to pick up on a point made by Nigel Terrington, chief executive of Paragon, who challenged assertions made by the government over the danger to the economy posed by buy-to-let lending. A key point in the bank’s financial stability report last month, that buy-to-let losses have been twice the level of owner-occupied losses, was flawed according to Mr Terrington . Notes to the report reveal that the assertion was based on data that mixed buy-to-let lending with ‘second charge’ mortgages. Mr Terrington points out that ‘second mortgage lending is a consumer finance product with materially higher loss rates. The loss severity can be 100%.’ He argued that lumping these mortgages together with buy-to-let skewed the data.
The committee put on record the need to develop better data but Mr Terrington and other industry leaders worry that decisions may be made before the correct information is available. Christine Whitehead of the London School of Economics agreed that the lack of consistent statistical information about the buy-to-let market was a ‘major problem, given the growing importance of the sector and scale of intervention currently being implemented’.
Having conducted a little research of my own by trawling through CML data and comparing the performance of buy-to-let with owner-occupied, it is clear that mortgage arrears and defaults in the owner-occupied space are higher than buy-to-let where three-months-plus arrears percentages have been falling comparatively over time.
The CML data might not cover all buy-to-let lenders but surely the figures are indicative as to what is really going on in this much maligned sector. Along with Mr Terrington, I would urge the Treasury and Prudential Regulation Authority to investigate these figures thoroughly and robustly before making any further decisions on imposing punitive measures on lending to landlords.