The audience was a collection of all of the above each with a vested interest in the health of the buy-to-let market and, judging by the audience participation, a belief that the growth of this sector is assured and any future regulation or intervention should be kept to a minimum in order to allow it to develop.
Now, while I don’t disagree with this, there was certainly some scope for some dissenting voices within the debate – just because a room full of industry people do not agree with policies such as rent controls, longer tenancies, landlord licensing, the abolition of tax relief for landlords, etc, does not mean there isn’t a significant group of people who are in favour of these measures. I suspect the proceedings could have been enlivened somewhat by them being represented perhaps by someone from Shelter or Generation Rent.
That said, it was an interesting and lively debate and, despite an overwhelming consensus on most of the issues, it struck me that while lender appetite for buy-to-let is growing there is still a tendency to play it safe and low-risk. Again, nothing wrong with this given the fall-out for the sector due to the Credit Crunch, however it was stressed a number of times that many lenders prefer to play in the shallow, residential buy-to-let waters while very few are, for example, willing to move beyond this into the realms of lending to limited companies or for houses in multiple occupation (HMOs).
Lender criteria was also highlighted as sometimes being restrictive particularly around the maximum number of properties landlords can have and the maximum age of the landlord. Again, given where we have come from and the absolute necessity of responsible lending then it doesn’t seem overly strict, and we are all acutely aware that pressure to move up the risk curve too quickly pre-Credit Crunch was partly responsible for the problems that ensued afterwards.
The nature of risk and mitigating that risk is of course the business Genworth is involved in, and has vast experience of. Lenders opt to utilise mortgage insurance in areas which are perceived as higher risk, such as high LTV lending, so that they can keep that risk to a minimum. It’s not just the purchase of the insurance which helps in this regard, but insurers like ourselves actively work with our lender clients in order to support their underwriting and lending decisions. All this provides the lender with increased confidence about the loans they are willing to make, and those they are not. Yes, they have the insurance in the background should it be required, but (as you might expect) it’s our aim to develop their systems and processes so that the lending decision is correct and there’s much less chance of a claim.
It struck me, in listening to the debate, that there is no reason why buy-to-let lenders could not adopt similar practices for their lending in this sector. Most lenders, we were told, were not willing to take the risk in specialist buy-to-let areas however by utilising mortgage insurance and the experience of insurers like ourselves, they may be able to develop their propositions in different areas. Of course, the pricing needs to work, the margins need to be sufficient, and the level of risk needs to be ascertained, but there could be opportunities for lenders who are already experienced in buy-to-let and use private mortgage insurance.
What certainly came across from the debate is the increasing role the private rental sector is likely to play in the future of UK housing. And therefore it seems obvious that demand for buy-to-let finance – in all its various guises – will continue to increase and, professional landlords in particular, will be looking to use a variety of vehicles in order to develop and grow their portfolios. Lenders active in buy-to-let may increasingly need to look beyond their traditional, residential activity to areas such as multi-lets, HMOs, limited companies and the like, and therefore now might well be the time to look at how risk can be mitigated in those specialist, but growing, niches.
