The buy-to-let market is never far from the headlines given there are still some deluded individuals out there who believe renting out property is some sort of ‘get rich quick’ scheme that requires no investment, resource, planning or brains.The facts of the matter are that it requires all those things and much more, and given the economic and lending environment of the past few years it has required them in spades.
Most recently we have the Bank of England requesting further powers not just for residential mortgages, but also the buy-to-let market, that will allow it to introduce LTV limits and debt-to-income ceilings on mortgages secured by landlords. It would seem that some believe buy-to-let lending is responsible for a multitude of sins – the stoking of house prices, the fall in first-time buyer numbers, the lack of house building in the UK and, most probably, global warming. All blame for these can apparently be laid at the door of landlords in the private lending sector.
This move by the Bank of England one might suggest paves the way for full regulation of the buy-to-let sector at some point in the future by the FCA. We are already getting partial regulation of mortgages taken out by ‘accidental landlords’ in 2016 when the European Mortgage Credit Directive comes into force and I suspect there will be a number who believe a sector which currently accounts for approximately 15% of all gross lending now needs to be fully regulated. The fact that buy-to-let is an investment decision and there is still no real clarity on who is actually being protected under statutory regulation, are questions that we still await answers on.
I sometimes feel like the powers that be believe the buy-to-let sector is some sort of ‘dirty secret’ they should be apologising for, when in fact it has been a particularly powerful and necessary force over the past decade or so. Of course, there were excesses in the lending community pre-Credit Crunch but thankfully those ‘practitioners’ have gone to the great buy-to-let lending graveyard in the sky and we are now left with a group of lenders who are practicing responsible lending to the nth degree.
So when I see David Cameron announce to the Conservative Party Conference that the latest addendum to the Help to Buy Scheme – the building of 100,000 homes offered to first-time buyers at below market value – will not be accessible to landlords as if they are somehow criminals, it makes my blood boil slightly. Because the fact of the matter is that without the private rental sector the ‘housing gap’ would be a chasm and the Coalition Government should forget this at their peril. With social and affordable housing levels having plummeted it has been the private rental sector that has taken up the slack and helped a roof over people’s heads that might otherwise have a complete lack of housing options.
The positives in all of this are that the buy-to-let market now has strong foundations upon which to build and I fully expect it to grow its lending share in the years to come. As stated above, it’s come a long way from its pre-Crunch days – landlords have to stump up a sizeable deposit to get a mortgage (at least 20%) which means they have considerable skin in the game, whilst lenders have stricter criteria in terms of rental cover and have focused much more on ensuring arrears levels remain under control.
While the number of lenders active in the sector continues to grow – the launch of Fleet Mortgages next month adds another to the competitor pack – advisers have grown their knowledge base and are in a position to help and support their landlord clients like never before. Resources for advisers are readily available on sites like Panacea and specialist distributors are also active and able to help those advisers both new and established in the sector.
Given the positive nature of the sector at the moment, one suspects that not even the spectre of full regulation could dampen the spirits of buy-to-let practitioners, however these forthcoming rule changes will impact on businesses and firms should make sure they explore their significance and the cost and resource it will require to maintain compliance.