Are many advisers finding it harder to get lending for their buy-to-let clients from traditional high-street lenders? Simoney Kyriakou investigates
Buy-to-let has been undergoing somewhat of a transformation over the past couple of years, with a 3 per cent stamp duty surcharge, tax relief changes and tighter lending criteria being imposed by the Prudential Regulation Authority (PRA).
According to Russell Quirk, founder and chief executive of eMoov.co.uk, the increasing complexity of buy-to-let has not helped clients, advisers or the mortgage lenders.
He says: “The buy-to-let sector is becoming increasingly complex given the new stamp duty penalties and tax changes.
“In addition, straight-laced lenders are currently becoming a tad over-cautious with their risk profile of property investors and may have turned the dial too much, where their buy-to-let specific products and underwriting is concerned.”
However, just because things have become more difficult, does not necessarily indicate there is no market or any appetite for buy-to-let lending.
David Hollingworth, director of communications for London & Country Mortgages, comments: “The pace of change has inevitably seen activity in buy-to-let calm somewhat but that doesn’t mean there is no market.”
The more complicated the set of circumstances, the more likely a specialist lender that can take a case-by-case approach will be able to help. — David Hollingworth, L&C Mortgages
Mark Harris, chief executive of SPF Private Clients, agrees there is a big tidal change: “The landscape is changing for lenders. Ultimately they evaluate the risk/reward for lending and act accordingly.”
However, despite the changes making lenders far more circumspect, Mr Hollingworth says advisers cannot ignore the options available from the mainstream buy-to-let lenders, as these will often be “very competitive”. He agrees specialist options may require a more bespoke touch.
Mr Hollingworth explains: “With more professional landlords likely to be interested in more specialist options, such as limited company structures and the options for portfolio lending, the specialist lenders will certainly have an important role to play.”
There are also issues around the self-employed or small business owner, who may wish to do a buy-to-let.
This has posed some problems for some would-be borrowers and their advisers, who are finding the regulatory restrictions on underwriting and the tighter rules around affordability creating a ‘computer says no’ mentality among some traditional lenders.
This is especially so when it comes to providing the necessary documentation; a minimum of two years’ accounts are required but some lenders have been asking for three. But what if the self-employed client has only been in business for 18 months?
Says Mr Hollingworth: “Whether you are talking about buy-to-let or the owner occupier market it’s recognised that the self-employed can struggle to meet the demands of lenders in evidencing income.
“That could be due to a short track record of self-employment or contract work and is an area that specialist lenders have been quick to seize on in both sides of the market.”
According to him, it is important for advisers to really know the market and what is on offer. He believes there can be good options from the mainstream lenders, who often have much higher levels of capital.
This means they have the resource to provide innovative products, but often specialist lenders tend to be more accommodating and can deal more granularly with individual cases.
Mr Hollingworth adds: “With mainstream lenders, competition drives more lenders to consider whether they can adapt their approach to assist more self-employed given the growth in that area of the working population.
“However, it’s also important to understand which of the specialist lenders have the potential to be more accommodating and when.
“The more complicated the set of circumstances, the more likely a specialist lender that can take a case-by-case approach will be able to help.”
There is still too little flexibility with the large lenders for Jane King, mortgage adviser with London-based Ash Ridge Private Finance.
She told delegates at a recent FTAdviser mortgage masterclass, sponsored by Aldermore: “High street lenders want a one-size-fits-all client.
“They want you to tick all of their boxes and there is just no flexibility. If you have a client who has something that sits just slightly outside of their criteria, then the answer is just ‘No’. They are just not interested.”
The bigger lenders may get there in the end but in the meantime the self-employed and those working in the gig economy may have gone elsewhere for funding. — Mark Harris, SPF Private Finance
Some large lenders are attempting to show flexibility, using their capital reserves to create products that will cater to the buy-to-let and self-employed.
For example, this autumn, The Mortgage Works, an arm of Nationwide, announced it was piloting a Limited Company Buy to Let mortgage product range in a move to widen options for professional landlords.
Ying Tan, managing director of The Buy to Let Business, says: “This is a defining moment in the limited company space where a major high street lender has decided to operate in this growing sector.
“We welcome the increased competition among lenders, which will hopefully mean improved criteria and attractive rates.”
However, despite developments such as these, for many advisers, there is just not enough flexibility among the largest lenders.
Mr Harris adds: “The bigger lenders are typically less flexible and/or take longer to adjust to different working practices. Specialist lenders, who are typically taking less volume and not suffering from legacy lending, are able to react and adapt more quickly.
“The bigger lenders may get there in the end but in the meantime the self-employed and those working in the gig economy may have gone elsewhere for funding.”
Mr Quirk says he has seen a growing trend in advisers and buy-to-let clients seeking alternative funding streams for their property plans, rather than go through a lengthy and often stringent process with high-street lenders.
He comments: “Specialist lenders, bridging finance, peer-to-peer lending and alternative investment approaches arguably better meet the needs of the bullish investor these days.
“These seem to have a dedicated discipline focussing on the buy-to-let space, a more comprehensive understanding and consider it to be lower risk than the likes of conventional lenders.”