Buy to Let market update - August 2008
Every news report seems to invariably contain a story about the ‘credit crunch’ and its effects on personal finance and borrowing availability. Since the start of 2008 we’ve seen changes in both the quantity of mortgages on offer and the criteria on those products that are available. So what does the current Buy to Let mortgage market look like:
Tightening of distribution channels
The key consideration of lenders is the quality of mortgage applications they receive. With this in mind lenders such as Mortgage Express have significantly reduced the number of brokers they will accept mortgage applications from. Mortgages for Business are delighted to have been hand picked to continue to be able to offer Mortgage Express’ product range. This trend looks set to continue as regulatory bodies and corporate governance place increasing scrutiny on lending. Loan to Values There has been a definitive shift in the maximum loan to value available to investors. Most products now require a 25% deposit; fewer require a 20% deposit and 15% deposit mortgages are now almost non-existent. It seems unlikely in 2008 we will see loan to values on offer increasing.
Pricing
The majority of Buy to Let products remain priced above 6.50%. This has been the case for some months, however we are starting to see signals that pricing may move downwards. LIBOR (London Interbank Offered Rate), the rate banks lend each other money and basis for mortgage pricing, has started to slowly lower after stubbornly staying at just below 6%. Meanwhile SWAP rates, the basis of fixed rate mortgage pricing, has also began to lower after a period of inflating.
Criteria
Most lenders have limited funding and ‘quality’ is the key driver in lending decisions, with most in situations continuing to take a cautious approach. New builds remain unfavourable amongst lenders as do first time Buy to Let investors.
Product availability
The number of products in the market place remains far lower than many investors may have become accustomed to in the last few years. Securitised lenders, who borrow funds from the money market to support their mortgages, remain unable to begin lending again as the cost of borrowing remains high and financial institutions continue to be unwilling to lend to them. Meanwhile specialist niche brands belonging to banks and building societies have limited tranches of funds because their larger parent firms have less cash readily available. Overall the Buy to Let lending market is still in a situation where lenders are focusing on ‘low risk’ and ‘quality’ applications.
