Most of the transactions that cross my desk comprise a mixture of commercial investment, complex residential investment and development finance.
About 20% of my work is vanilla buy-to-let. Should I encounter anything unusual in this segment, I turn to Mike Freeman our head of specialist underwriting for guidance.
Last week I needed his advice and I sat back in amazement at the limited solutions he had given me.
My clients, a husband and wife, own a well-established portfolio of some 30 properties which provides surplus income in excess of £150,000 per annum, as well as having some pension income from an early retirement scheme.
They live in a medium-sized executive home worth around £500,000 with no mortgage.
They want to buy a substantial property worth in excess of £1m because they feel the market at that level is soft but also recognise that it similarly applies to their own home and therefore now is not the time to sell.
So with a solid prediction of rent at 4.75%, they ought to be able to release capital on a buy-to-let mortgage to carry into the purchase along with cash and some modest release of capital from other properties in their portfolio.
The plan is to borrow 75% of the current value supported by expected rent for this property.
Of the 25 lenders with whom we regularly do vanilla buy-to-let cases, and surely this is a vanilla transaction, the result was:
- 21 would not lend.
- Two would lend but with restrictions or inferior products.
- Just two saw this as standard business and welcomed such applications.
Should I be more irritated by those that won’t lend or those that apply special terms?
The logic, or perhaps lack of it, that prompts lenders to preclude lending in these circumstances puzzles me for several reasons.
- Properties owned by landlords will generally be better maintained than other local stock.
- The properties will be of above average value – landlords always live in houses well above the average value of properties in their portfolio.
- The expected rent will come from mid-market renters and should suffer less void periods than the market norm.
- They will not hold on to the properties for emotional reasons – this is a business decision.
I am sure that those who formulate credit policy at some lenders will rush to set out the reasons why my perspective is inappropriate.
I suspect some of their comments will be as puzzling as the reasons that credit departments put forward when they can’t think of something that the rest of us can comprehend.
The lenders that deserve praise in this situation are Mortgage Trust and BM Solutions for seeing this as standard quality business.
The ’must try harder’ badge goes to The Mortgage Works and Platform for placing restrictions and inferior products in the way of borrowers.