Although the choice is extensive, in our experience just 50% of this prolific offering is being taken up. Therefore it is questionable as to whether there is value in designing products that overwhelm the buy-to-let market and contribute little to lenders’ volumes.
It is appreciated that lenders want to capture a good share of the market but the more complicated – sometimes described as ‘imaginative’ – products are being left on the shelf and are not the answer to creating sales.
In many cases the products being ignored are as cost-effective for borrowers as their more popular transparent counterparts. We believe this is down to the fact that over the past few years borrowers have been brainwashed into believing the interest rate is the primary and all-important consideration.
This attitude could create problems for lenders considering entering the buy-to-let market. They will find it difficult to get into. The usual cautious approach of conservative pricing and restricted lending criteria is no longer an option if they want to be real players.
The early buy-to-let days of 65% and 70% loans are long behind us. Landlords are being offered LTVs of 85% and 90% from many lenders. Along with this there have been considerable changes in rent cover. Some 10 years ago it was usual to see a multiple of 150% of the rent whereas today 100% is common.
Other substantial differences include more lending to landlords who have no current borrowing for either a residential or buy-to-let mortgage. Then there are lenders that have no upper age limit, no main income requirements and even consider limited companies and ex-pats for buy-to-let mortgages.
Equally we have seen a relaxation of property criteria which can now include freehold houses in flats, converted flats, former council properties, flats above commercial premises and some semi-commercial properties that in years gone by would have only qualified for commercial loans.
So first, there is little point in lenders creating extensive ranges of products in the hope that they appeal. Rather, they should bite the bullet and accept the market requires a competitive offering.
Secondly, criteria must be closely reviewed and finally, lenders that want to enter this market in 2007 will have to be adventurous.