Recent activity in the buy-to-let mortgage market has presented me with a few perplexities. During the month of August, a considerable number of lenders reduced their buy-to-let rates by between 5 and 50 basis points, including Precise, Virgin Money, Leeds Building Society, Platform, Clydesdale and Godiva. The immediate question that springs to mind is ‘why?’
Often buy-to-let interest rate changes correlate with movements in the money markets, but Libor rates and short-term swap rates have been pretty stable over the last few weeks. This would suggest that something other than the cost of money may be driving the downward trend amongst these buy-to-let lenders as it can only mean a reduction in profit margins.
It occurs to me that one of two scenarios could be the reason behind the recent buy-to-let rate reductions. The first scenario is that lenders have an increased appetite for buy-to-let loans and have cut their rates in order to become more competitive in the marketplace and drive higher levels of new business. This is quite feasible given the strong performance of buy-to-let books in general and the overall increase in mortgage lending during the first half of this year.
The second scenario is that buy-to-let business for these lenders has slowed down and the rate reductions are a tactic for increasing volumes in order to meet their existing lending targets for the year.
There have been mixed messages from lenders suffering from processing backlogs. It is not clear whether delays are due to an increase in buy-to-let applications or caused by resourcing issues such as staff sickness and holidays. Either way most lenders have backlogs with some lenders currently up to 18 working days behind, which really is unacceptable.
Of course, the situation is probably different for every lender and there could be other factors in play that are not apparent to an outsider looking in. Either way, increased competition in the buy-to-let mortgage market is always good news for landlord clients, who will be keen to take advantage of the excellent deals on offer. Let’s just hope that lenders can maintain their service standards at the same time.
One lender which may be bucking the trend is Kent Reliance. It has recently increased its minimum loan size from £50k to £100k for its standard buy-to-let range and from £75k to £150k for its HMO and limited company range. There has also been an increase in interest rates across its range of large buy-to-let loans, so it is reasonable to deduce that these changes have been implemented to stem the flow of business.
As the only lender offering 85% LTV buy-to-let mortgages and also specialising in areas such as HMOs, limited companies and student lets, Kent Reliance may have become a victim of its own success. It would be a really positive move for the buy-to-let mortgage market if a few more lenders were competing in the 85% LTV space and offering further options for niche buy-to-let cases.
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Tel: 029 2069 5446
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