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Buy-to-Let Watch: Be brave and ride out the storm

As borrowers rush to beat a rise in Bank rate, and some portfolio landlords struggle with PRA 2, service will remain the defining factor

Whittaker_David_2015

After a summer of incred­ible events across the globe, Brexit could seem a parochial inconvenience were the Government not weakened by in-fighting and the lack of a working majority.
So it was unsurprising to see ratings agency Moody’s downgrade government debt in September, causing a huge spike in swap rates, although they have since settled down again.

Then the stronger than anticipated GDP growth of 0.4 per cent exacerbated market expectation of a November rise in Bank rate, which then happened. Of course, several residential lenders had already withdrawn their most aggressively priced deals and, with a few exceptions, most BTL products were inching upwards too.

To my mind the bigger threat is to fixed rates. Those crazy residential five-year fixes at 1.65 per cent are over and anything below 2 per cent should be seen as having a limited shelf life. The BTL space can absorb the impact for a bit longer, as margins are higher, but I would be surprised to see five-year fixes from credible lenders below 4 per cent beyond the February MPC meeting, if not sooner.

However, the opportunity for remortgage business will be immense. Homeowners, including landlords, may run for cover in the months ahead before fixed rates move too far from relatively well-priced historic variable-rate loans.

Of course, we are still in the early period of PRA SS 13/16 Part 2, where portfolio landlords have been defined as those owning “four or more mortgaged properties” including the current transaction if a purchase — a definition that proved too complex for a handful of lenders as the 30 September deadline approached.

The issue for brokers is still service. We are entering an acclimatisation period and turnaround times will suffer, so we have a choice to make: do we send cases to specialist lenders or stick with mainstream providers with a limited understanding of the new processes?

We are working hard to react appropriately to client needs. There’s no point choosing a lender that is struggling to turn around cases if the client needs a quick deal. That said, many portfolio landlords still do not know about PRA 2. Brokers could find that this bedding-in period goes on for quite some time.

Longer term, some may quit BTL altogether, leaving a larger slice of the pie for remaining brokers, despite a predicted fall in overall BTL lending volumes.

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David Whittaker is chief executive of Mortgages for Business

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