Criterion is king: Buy to let in 2012

Criterion is king: Buy to let in 2012


Despite the huge increase in buy-to-let lending, borrowers must meet ever stringent post-credit crunch criteria to qualify for these mortgages. With this in mind, Steve Olejnik, Head of Sales at Mortgages for Business

, offered his thoughts on the current buy-to-let market…

The latest quarterly Bridging Index from West One Loans states that more investors are turning to bridging as a means to finance their projects, largely due to the inability of mainstream mortgage lenders to cope with high demand for buy to let finance.

As specialist brokers in buy to let and commercial mortgages, we don’t think this assumption is true. Whilst bridging finance may well be on the increase it is not because the lenders are struggling to cope with the rising demand for buy to let mortgages. Since the credit crunch lending criteria has changed considerably, making it much more difficult for property investors to qualify for buy to let finance.

Lenders are much stricter on their stress tests today than in the heady days of 2007 when finance in general was easier to secure. These days they look closely at the property itself and the experience and credit profile of the prospective borrower.

If the proposed property requires refurbishing prior to being let, bridging finance may well be the most appropriate form of funding in the first instance. This is because buy to let lenders prefer to finance properties that are ready to rent out and often also require that an AST (assured short-hold tenancy) is in place prior to agreeing funds.

Where refurbishment is required, a short term loan can provide investors with the finance to bring the property up to standard; the exit strategy being to refinance onto a buy to let mortgage once the property meets with the lender’s criteria. When costing this funding strategy, investors should keep in mind that they will not be able to refinance until they have owned the property for a minimum of six months.

Location is another important factor for lenders when considering a buy to let mortgage applications. They will look closely at what the locale has to offer by way of amenities and transport links and then research recent comparable sales and rental achievements.

For investors looking to purchase more complex residential property such as houses in multiple occupation (HMO) and multi-unit blocks owned on a freehold title, lenders prefer that investors have previous experience as a landlord although not necessarily in the complex arena. They may also insist that licences for HMOs are already in place. Rent to interest cover too, is more stringent than for standard buy to let purchases. Additionally, lenders like to see a detailed valuation report and so are likely to instruct valuers with more commercial property experience.

Regardless of the property type, lenders today are much more fastidious when it comes to personal credit profiles. They prefer borrowers with a squeaky clean record and can afford to cherry pick.

As with bridging finance, buy to let lending is also increasing rapidly. Last year it accounted for nearly 10 per cent of the overall mortgage lending market. This year we anticipate that buy to let could total £17 billion which would account for around 12 per cent of the total pot. The reasons for this continued increase are numerous and include:

Rental demand continues to outstrip supply

An increase in the number of lenders entering the sector has pushed up product availability

The inability/reluctance of first time buyers to secure a mortgage

Workforce mobility and job concerns

Let to buy for second and third time movers

Reduction in social housing activity from both housing associations and local councils

Property as an asset class is viewed as a safe haven for investors in uncertain times

Lending criteria in the buy to let arena may well have changed in recent years but it has done so in order to survive. And survive it certainly has. Bridging too seems to have come out of the shadows and has stepped boldly into the mainstream. For many circumstances they are perfect partners; buy to let providing the perfect exit strategy for bridging deals. Long may both continue!



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