Paradigm warns BTL sector not to return to risky practices

26 August 2011 | By Natalie Thomas

Bob Hunt, chief executive of Paradigm Mortgage Services, says it will suit no-one to return to a time when some lenders offered 100% mortgages and rental cover requirements became an irrelevancy.

He says with a number of new and former buy-to-let lenders entering the market in 2011, there is concern that greater competition might result in a return to the past with significant rises in maximum LTVs and a distinct softening of criteria particularly around rental cover and borrower income requirements.

He says: “Concern has already been expressed within the industry that criteria changes of this nature, which effectively make it easier for some borrowers to obtain finance, could deliver a similar result to that which occurred as a result of the credit crunch.”

It would like to see lenders maintain deposit level requirements of 15-20% for buy-to-let mortgages and rental cover to remain at the 120%-plus level. 

It is also urging brokers to make sure their clients – particularly first-time/amateur landlords – are made fully aware of their responsibilities in terms of both the buy-to-let mortgage, the property investment, and their duty of care to their tenants.

He adds: “Buy-to-let has to work for all concerned and it is important that deposit levels are maintained at their current amount and that lenders do not climb too far up the risk curve, too quickly, in an attempt to secure volume in an increasingly competitive market. 

“We should not forget the mistakes of the past and it is important that brokers point out the potential pitfalls to clients alongside the benefits. 

“The sector has worked hard, particularly on its arrears levels, and all stakeholders have a duty to dispel the myth that buy-to-let is now a booming market in which any fool can make money quickly.”

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