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Aggressive tendencies

Nicola York looks at the battle lines have been drawn between lenders as they compete on buy-to-let pricing

The buy-to-let market is caught up in a rates war as lenders battle for increased volumes of remortgage business by cutting margins to their lowest levels in years, according to both providers and intermediaries.

Platform sales and marketing director Guy Batchelor believes that quite a few lenders are getting very aggressive in reducing their margins, noting that the market is seeing BTL fixed rates below 5 per cent and three-year products below 4.90 per cent. He says: “Certainly ourselves, people like G-Mac and the Mortgage Works are really starting to compete head-on.”

Batchelor thinks the aggressive pricing is set to continue. He says: “Obviously, interest rates and where they go is a key thing but certainly at the moment there is a big remortgage feast going on so I just want to feed it and get my fair share.”

But Paragon Mortgages managing director John Heron believes the situation is being over-stated. He says: “I do not think we have a price war, to be honest. Mortgage markets, for as long as I can remember, have been very competitive.” He concedes that the market is certainly competitive and will remain so for the foreseeable future but he does not think it is unusually competitive. “The rates are eye-catching but people are not factoring in the fee and that is the problem. The level of fee needs to be understood because some are very substantial.”

Mortgages for Business managing director David Whittaker says the pricing battle is on because lenders are fighting to maintain share and therefore having to attract business in.

He says: “They spent the first few months of the year hoping that the market would turn up in volume terms and bail them out of their dilemma as it is becom-ing obvious to them that the market is finding a nice steady level and they are not going to make up their lost ground so now it is a fight.”

Whittaker talks of recent repricing by lenders such as Platform and Mortgage Express, which have relaunched competitively in the last couple of weeks. He says: “It strikes me as ironic that lenders are capable of that just as we are about to go into July or August, when volumes are down anyway.”

He feels that some lenders are “jockeying for position” but believes that this seems to be a bit of a wasted call “when the pool of business available is rather skinny anyway but that is for lenders to judge for a few weeks.”

Whittaker says Mortgages for Business is seeing about 10-12 per cent more remortgage business than he would expect and the reasons for this are because three or four years ago, the BTL boom was “running at full throttle” in the South- east and therefore these products have reached the end of their initial period.

He says: “There is a massive book of business to be either fought for and retained by the lender under customer retention programmes or to be rebroked into the market.”

Whittaker suspects that the price battle will reach a new intensity in late September “because it always does”.

He says: “2005 is the borrowers’ year. BTL borrowers have never had it so good. There is oversupply in the market and at a time of modest contraction of demand, it just leads to an absolute fund fight.”

Mortgage Portfolio Services mortgage planner Simon Chalk says the BTL market has matured and this is partly why rates have fallen in recent weeks. Chalk says that a low arrears’ history coupled with low rental void periods has lowered the risk profile of the BTL sector. He says: “As the risk has fallen, the actual cost to the lender does not need to be borne so greatly, hence they can afford to chop rates.”

He says the market is “pretty sticky”, meaning fewer new buyers. “We are seeing a dramatic drop-off in purchasers so it is all remortgage activity. To do that, you have got to entice them away from their current lender and you need a headline rate to achieve it.”

Commenting on the current repricing, Chalk says: “It is all very well lenders stealing business off each other and we benefit as intermediaries and clients arguably benefit from lower rates but it is a vicious circle. It is not doing anything clever for the housing industry. There is no such thing as new money, it is all old and that is absolutely true in the mortgage market. It is just washing its face through different lenders and going from A to B to C.”

But BM Solutions senior product manager Colin Barrett says the aggressive pricing in the market is not just restricted to the BTL sector. He says: “We are seeing it in every sector of the market from mainstream through to sub-prime, with some extremely tight mortgage deals coming out into all of those markets.”

Self-certs have dropped on average from 1 per cent over base rate to more like 0.75 per cent, which Barrett says is great news for consumers.

He thinks it is between three and five years since there have been such aggressive pricing moves across the board. In terms of BTL, he says they have also become aggressive on the accessibility front as well as price.

Barrett says these rates are unlikely to drop much further. “There has to be coverage for the risk that the lender is taking on and at some stage we will stop. We will see a little bit more but I am not sure we have got very much further to go.

“What I suspect will happen is when there is another base rate move, which we all expect over the next month or two, then we might start to see some stability come into pricing.”

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