Buy-to-Let Under Siege?

By Ryan Weeks on Thursday 17 December 2015

Alternative Lending

The tea leaves suggest that the UK’s buy-to-let market is due for a crackdown. Are the likes of LendInvest and Landbay concerned?

Bank of England governor Mark Carney has expressed concerns over the UK’s buy-to-let property market. Carney is on record as telling the FT that the Bank is keeping one eye trained on the sector, and that some kind of action is coming. He was in talks with Chancellor George Osborne earlier in the year about obtaining powers to regulate the buy-to-let space. Quite what those powers will amount to is as yet unclear, but some manner of shake-up appears inevitable.

The concern is that a sudden dip in house prices might lead to a run of buy-to-let home-owners selling their properties. The Bank of England’s Financial Policy Committee (FPC) issued a warning about the buy-to-let space in September, suggesting that it posed a potential threat to the UK’s financial stability. As of 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of “additional residential properties” – which includes both buy-to-let properties and second homes. Chancellor George Osborne revealed in the recent Autumn Statement that the SDLT will be hiked by 3%.

Buy-to-let mortgages make up a significant proportion of the peer-to-peer lending space. LendInvest leads the way, having lent a cumulative total of £468m to date, according to the Liberum AltFi Volume Index UK. LendInvest focuses on buy-to-let mortgages and development loans. Landbay is one of the UK’s fastest rising peer-to-peer players, and is focused exclusively on buy-to-let. Are the brains behind these platforms concerned?

Landbay recently became the first peer-to-peer lending platform to become a fully fledged member of the Council of Mortgage Lenders. Founder and CEO John Goodall offered his take on Mr. Carney’s misgivings:

“Landbay, along with other members of the CML, are consulting with the Bank of England and other regulatory bodies around BTL lending practices. The FPC has some concerns for the potential of the loosening of the lending criteria by some Lenders, particularly to inexperienced landlords. Landbay lends to experienced and professional landlords and stress testing potential applicants against rising interest rates, falling rents, rental voids and falling house prices is a central focus of our underwriting process. The average LTV of a Landbay mortgage is 67% and the average rental coverage (rent payment/mortgage payment) is 172%. Governor Carney’s concerns are generally focussed on where there is inadequate rental coverage – particularly below 125%. We agree with Governor Carney that lending with low rental coverage can be risky and it is not something that we would expose lenders on Landbay to. We believe that every lender should focus on what could happen when the economy worsens and that is why we have been such a strong advocate of stress-testing.”

It is worth noting that BTL mortgage lending is c.25% below pre-crisis levels and that most BTL lenders’ loan books performed very well throughout the credit crisis – typically outperforming owner occupied which are typically higher LTV (currently up to 95%). The demand for buy-to-let is driven largely by an increase in the demand for rental accommodation and the fundamental lack of supply of rentable properties is why rents are rising at an average of 3% a year – as shown in our Rental Index earlier this week.”

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