The financial crash had a positive side effect
Bob Young is managing director of CHL Mortgages
As the buy-to-let market continues to collect the plaudits for its rapid rate of recovery, it is important that lenders don’t abandon the fundamentals of sensible lending in the pursuit of increased volumes.
Such reckless behaviour – in the wider residential market as well as the rental sector – is what helped cause the global financial crisis we are still yet to fully emerge from and if we take one positive from the longest recession in living memory, it should be that we learned some valuable lessons about how not to lend.
While buy-to-let remains outside the jurisdiction of the Financial Conduct Authority, its protagonists could do worse than apply some of the tenets of the Mortgage Market Review to its operations.
After all, the key driver behind the guidelines is ensuring the mortgage market never repeats the mistakes it made prior to 2007/8.
Another useful by-product of the downturn is that lenders were able to find out just how robust their systems were. In much the same way that drivers would prefer never to have to test the effectiveness of their airbags, most organisations would probably rather not have to deploy their crisis strategies but the financial crisis afforded them no choice in the matter.
For us at CHL, the last few years have confirmed to us that the quality of our underwriting and credit scoring was absolutely robust enough and this has been evidenced by ongoing low arrear levels and the number of complaints we receive and are upheld against us.
Our processes were strong enough heading into the credit crunch, but withdrawing from new lending has also allowed us concentrate on reviewing our processes to ensure they are as efficient as possible and servicing our existing book to the best of our ability. This period of introspection means we will be fully prepared when we do again welcome new borrowers and have been able to observe at a distance lenders that are in the process of repeating previous mistakes.
Staff training has also been a keen focus for us over the past few years and with three-quarters of our workforce now CeMAP qualified or better, we are well positioned for the challenges that lie ahead.
One thing that lenders can sometimes lose sight of as they chase market share – and attempt to do this partly by pushing through cases as quickly as possible – is the absolute need to have a number of eyes on each application, including as many senior individuals as possible. The suitability and reliability of the borrowers must be accurately gauged to avoid problems further down the track. As the buy-to-let sector continues to improve and more new property investors seek to come to market, keeping the right checks in place becomes increasingly important.
We all want the buy-to-let sector to continue to thrive, but there is no excuse for deviating from a sensible lending framework in order for this to happen.
The global financial crisis has been deeper and longer than any of us would have wished and if we fail to heed the mistakes that helped cause it then we are failing to capitalise on one of its only positive side-effects.