In 2017 buy to let lending totalled £34.9bn, just shy of the £35bn best-guess we predicted. The figures were published by UK Finance, the new body which has replaced the Council of Mortgage Lenders.
But I wonder if that’s the real figure. Clearly, UK Finance asks for purchase and remortgage numbers and values, but we don’t know the reporting parameters that each lender sets itself for extracting that data.
For example, do lenders include product transfers in their remortgage data? In the past, one could have argued that it didn’t matter either way because these products probably accounted for less than 2-3% of the overall figure.
These days, however, we have seen a rise in the popularity of product transfers and according to our management information, last year they accounted for 5.2% of our buy to let business, that’s up 40% on 2016. If some lenders aren’t including product transfers when reporting to UK Finance, you could say, it’s now mildly irritating.
Looking ahead, we expect the product transfer market to grow further for a number of reasons:
- In terms of up-front costs, they are usually cheaper for the borrower because there are no valuation or legal fees, and often, reduced completion fees
- The process is much quicker for the borrower than refinancing away
- They work well for borrowers who may be potential mortgage prisoners in a post-PRA SS13/16 Part II world
Whilst this might be good for landlords, the same can’t be said for brokers.
We’ve found that some supposedly intermediary-only lenders have been writing directly to borrowers offering them the option to transfer – and thus bypassing us, the introducing broker. So, when we contact the client about remortgaging or transferring, if the product transfer proves to be the most suitable option for the client, the client says to us, ‘I’m happy to let you have the business as long as you don’t charge me a broker fee, because I can avoid your fees if I go to the lender directly’.
What else can we do but acquiesce? When this happens, I think it’s fair to say that brokers are not happy bunnies.
It’s certainly not boosting the lender-broker relationship and in an increasingly specialist market, where the knowledge of brokers is utterly key, it’s distasteful behaviour to say the least.
Add to the mix, the fact that lenders pay brokers a lesser proc fee on product transfers (except BM Solutions which seems to have the best moral compass on this issue), and it’s not hard to work out that we are going to have to write several times more business just to maintain the status quo. In an already shrinking market, this is not good position to be in and I wouldn’t be surprised if product transfers account for more than 10% of the market within the next two years.
Returning to my original point, it would be good to understand more of the detail on buy to let lending, not least because it gives us a better idea of the direction in which the market is heading.
We all know it’s becoming more specialist but how? If we are to truly understand the impact of the tax and regulatory changes it would be useful to know. It would help us steer our businesses along the right path.
Perhaps more importantly it would useful if HMRC and the PRA knew too! If they had a good handle on the volumes of business made by say, portfolio landlords or landlords using limited companies, or made as a product transfer for example, perhaps there would be less chance of them coming up with additional measures to curb buy to let lending.
I’m not saying they are planning more measures. We expect the market to shrink further this year, probably by another 11%. If we’re right, this would mean a total lending figure in the region of £31bn in 2018.
Buy to let is in the spotlight and if we are to ensure the success of the sector, greater transparency, a more cohesive approach, and a deeper understanding of the new, specialist landscape will serve us all well.
An abridged version of this article was published in Mortgage Strategy on 27th March 2018.