BTL lenders

Is the BTL market still attractive to lenders?



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Some of the less successful BTL lenders could quietly retreat from the market as margins in the owner-occupied space are much thinner, a specialist lender has claimed.

The comment follows recent research produced by Shawbrook Bank on the BTL market.

The ‘UK Buy to Let’ report predicted that the market would continue to dampen over the next three years, before stabilising in 2021, and return to growth in the following two years.

Will the BTL market stabilise by 2021?

“The fiscal and regulatory changes already introduced by the government are clearly having the desired effect so, as long as the government doesn’t spring any further surprises on landlords, the BTL market looks set to stabilise,” said Steve Olejnik, managing director at Mortgages for Business.

“UK housing remains in crisis with too few new homes being built both for sale and for social rent.

“This means that private landlords will continue to plug the gap.”

Adam Tyler, executive chairman at FIBA, felt that while the conclusions of the report were realistic, with any survey, assumptions were made based on external factors remaining constant.

“So, while a sensible assessment like this is welcome, it is best to remember that it can only be based on current data.

“So, with Brexit just around the corner and wider economic concerns lurking in the background – let alone a potential change of government or further unwelcome revisions to government or regulatory policy – there are any number of issues that have the potential to make future projections meaningless overnight.”

Does the industry expect consolidation in the BTL market?

“This is, as John Cleese might say, a ‘dead parrot’ of a sector, and such a shame as it did have a wonderful ‘plumage’,” said Arwel Griffith, partner at Robert Sterling Surveyors.

“There is no prospect of any sort of recovery any time soon, so find something else to invest in,” claimed Arwel.

Chris Gardner, CIO and head of risk and compliance at Amicus Finance PLC, felt that the BTL sector had become less attractive than it was, and due to the complexities of recent tax changes, a market that was becoming more of a speciality, with a higher barrier to entry.

“As such, I think margins are likely to remain attractive for those who have the technical ability and distribution to serve the BTL market.

“Some of the less successful BTL lenders will no doubt quietly retreat from the market as margins in the owner-occupied space are much thinner.”

John Heron, director of mortgages at Paragon, added: “The detailed systems and underwriting capability required to assess larger portfolios is going to make it more difficult for new entrants to get a foothold in the market.”

Jonathan Sealey, CEO at Hope Capital, felt the demand for rental properties remained.

“At the moment, more BTL lenders seem to be set to enter the market rather than leave it, and at Hope Capital, we continue to see developers looking at bridging as a means to refurbish rental properties or adapt them to accommodate more people, so demand from landlords certainly hasn’t gone away.”

Liz Syms, CEO at Connect for Intermediaries, believed there were still profits to be made in BTL.

“Rather than the number of lenders lessening, many new lenders are still looking to enter the market and there have been many new entrants over the past year, looking to specialise in a certain niche of BTL. 

“Meanwhile, many existing lenders have been adapting their criteria and propositions to help landlords overcome the new regulations, particularly in the portfolio landlord space.”

Steve agreed, adding: “I expect we’ll see a few new entrants, although [they] will most probably concentrate their efforts in the specialist sector where propositions tend to be more commercially focused.”

Will BTL lenders adapt?

“Specialist lenders will focus on developments to support larger-scale landlords more effectively,” said John.  

“At Paragon, for example, we have removed the floating charge requirement for limited company applications and streamlined our switch and further advance process.”

Damien Druce, director and head of intermediary sales at Assetz Capital, added: “…There is a need for product innovation rather than just simply following the market. 

“Borrowers and intermediaries alike need product innovation from lenders – otherwise we could see the market stagnate.”

Barry Searle, managing director of mortgages at Castle Trust, said that the more specialist end of the market was thriving.

“I therefore think we will continue to see more product evolution in this end of the market as landlords continue to develop more sophisticated models and the market adapts to meet this increasing appetite.”

Jo Breeden, managing director at Crystal Specialist Finance, said it had seen changes in demand from investors with a move towards semi-commercial properties and HMOs.

“If the report is correct, it could have one of two effects: either lenders will fight over a continuingly reducing pot of business with the resulting price war that will ensue [or] alternatively, lenders will extend their criteria to cover more unusual scenarios – we have already seen a move by savvy lenders to limited company BTLs and HMOs, for example.

“BTL has always been an entry point for new lenders due to the ability to build an asset base relatively quickly – we have seen a similar pattern in bridging over the last few years – [and] it is natural to believe a dampening in the market will probably result in a certain level of market consolidation.”

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