As 2014 draws to a close and the festive season begins, now is a good time to reflect on the past year’s activity, then start looking and planning ahead for 2015.
For the buy-to-let mortgage market, 2014 has been a year of continued improvement building on the growth experienced in the previous year. Not only has the level of new buy-to-let lending risen this year (expected to reach around £25bn), but importantly for landlords, the number of products available in the marketplace has increased considerably.
At the beginning of 2014, Property Hawk Mortgages had around 400 buy-to-let mortgage products on its sourcing and quotation system compared with well over 600 products that are currently available. This is an increase of over 50% and clearly demonstrates the improved appetite of lenders in this sector.
The quality of buy-to-let mortgage business continues to support growth in the market as lenders assess risk in different sectors. The Council of Mortgage Lenders reported earlier this year that around 1.7% of home-owner mortgages had arrears equivalent to at least three months' mortgage payments while the proportion was around 0.9% among buy-to-let mortgages.
As competition has increased, buy-to-let rates for mainstream applications have become very keenly priced especially at 75% loan-to-value and are now closer to residential mortgage rates that ever before. Presumably this has resulted in squeezed profit margins for lenders, which may partly explain why there has been an increase in the number of lenders now offering 80% loan-to-value products at higher rates, thus returning higher margins.
Options for landlords in niche areas such as HMOs, limited companies and student lets are still mainly provided by Paragon Mortgages and Kent Reliance who cater well for professional landlords with large portfolios. However, the recent announcement of a new lender in this arena, Fleet Mortgages, is very exciting. Fleet Mortgages will be distributing its products through a very limited number of specialist brokers including Property Hawk Mortgages.
2015 will see more entrants into the buy-to-let mortgage market as a number of new lenders are currently applying for banking status. Hopefully, this will also encourage product development in the sector and perhaps further improvements in lending criteria.
In particular it would be good to see more lenders offering 85% LTV products. Many landlords like to employ higher gearing in their property investments and currently Kent Reliance is the only place to go. Recent increases to their rates and minimum loan size indicates that Kent Reliance is stemming the flow of business at the moment, perhaps as a result of too much demand.
It is widely expected that interest rates will increase at some point in 2015, although some economists are predicting later rather than earlier in the year. This will clearly impact on buy-to-let mortgage rates which are likely to increase in-line with changes to Bank of England Base Rate. However, I expect lender appetite to remain strong and competition among lenders to temper rate rises, ensuring that the buy-to-let sector remains attractive and viable for landlord clients.
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