Buy-to-let Watch: Why now for rental cover calculation tweaks


The buy-to-let market has grown rapidly in recent years, with landlords, lenders and brokers all benefitting from this, writes OneSavings Bank sales and marketing director John Eastgate.

Headwinds are all too apparent however, and we are now in a world where politicians and regulators have intervened (or suggested that they might) in an attempt to slow things down. A primary concern is, quite reasonably, affordability assessment and in moves to pre-empt any potential regulatory intervention, a number of lenders have moved to increase their stress rates and I suspect that more will follow in the months ahead.

We too have just implemented some changes to our rental cover calculations for our buy-to-let lending. From now on, some investors might find it a little bit harder to get the loan amount that they’re after. You might think this an odd move from a lender that has, in the last few years, established a strong reputation as flexible and specialist. It’s not. If anything, it demonstrates why we are one of the forward-thinking companies in the BTL sector.

In choosing to change, it should be noted that we have not simply followed the herd by upping the stress rate: we have made our own call, using our own research and our own extensive analysis. That is what we do. We are a specialist lender because we have a pool of expertise and experience to draw upon, so rather than going for the blunt instrument of hiking the rate at which we calculate our loans, we went about it more forensically.

I will not bore you with every step of the journey, but in short, we have analysed landlords’ property holding costs in different circumstances and also considered the net impact of interest rate and rent rises over the coming years, to end up with what we believe is a robust and responsible revision to our policy. It increases our focus on our target market of professional landlords, whilst taking a more conservative approach for the amateur landlord trying to get into BTL.

That was a conscious decision on our part. We believe that political and regulatory concerns are in part driven by opportunistic investors, keen to get better returns on their capital than their bank savings account, who have seen rising rents and house prices as a one-way bet. BTL is not a one-way bet. It requires a considerable investment of time, and money, and entering the market should be seen as a move not to be taken lightly. Taking the heat out of the amateur end of the market – and 72 per cent of private landlords only have a single letting property – will do much to address political and regulatory concerns.

The CML is forecasting broadly flat BTL transaction levels for 2016 and 2017, albeit with a shift towards remortgage activity rather than purchase. This shows that the societal fundamentals that have driven growth in the private rented eector (PRS) remain intact – growing population (for a variety of reasons), affordability stretch for owner occupied mortgages and a lack of new housing starts all point to the PRS continuing to grow. The BTL market will grow with it. But the regulatory and political perspective is that growth without some controls could have a widespread and negative impact under certain circumstances. We have an obligation as a responsible lender, within a responsible industry, to recognise those concerns and act to support the sustainable growth of a market that is fundamentally important to the UK’s social infrastructure, let alone the housing market.

In the last few years, many lenders have copied elements of what we do. On this occasion, I sincerely hope that where we have led, others will follow.