It is hard to assess the health of the buy-to-let market as there are so many contrasting indicators.
On one hand, you have Paragon resuming lending after a gap of a couple of years while on the other you have Lloyds Banking Group deciding to restrict its buy-to-let criteria so borrowers can only borrow through BM Solutions with a limit of £2m of borrowing and three properties per individual.
I think the truth lies somewhere in between. The news that Paragon is lending again to professional landlords is great news and demonstrates that if a lender is prudently run with good underwriting and management, then it is possible to obtain funding from the market rather than just relying on depositors.
Paragon was always slightly more cautious with its lending during the boom and did not get carried away like some of the other lenders which went bananas lending to borrowers snapping up newbuild flats touted by property clubs.
By concentrating on professional landlords, it made sure its borrowers understood the risks and did not think that buying buy-to-let off plan was the secret for untold riches. Even when it stopped lending after its funding ran out it remained a profitable business.
Although Lloyds pulling back slightly from the buy-to-let market is clearly a blow, Lloyds’ commitment to landlords is not in doubt. Outgoing sales director Nigel Stockton pointed out recently that even taking into account the tightening of its policy, Lloyds would continue to do more than 50 per cent of buy-to-let lending, hardly stingy.
The decision to ensure that all the group’s buy-to-let lending is done through BM Solutions is an eminently sensible one. BM’s systems are arguably the best in the industry and this leaves C&G to concentrate on residential lending.
Whatever we say about the state of funding in the residential market, lenders are undoubtedly concentrating their lending on residential borrowers at the expense of buy-to-let. Lloyds and Nationwide’s The Mortgage Works have been doing a massive proportion of the market, leaving other lenders to pick up the rest.
Loans to value have been edging up slightly and we have seen more products with set fees rather than percentage fees which can cost borrowers taking out substantial loans many thousands of pounds.
But no matter what the current situation is for the buy-to-let market, its future looks fantastic. It would appear that the FSA does not intend to makes it any easier for residential borrowers to get on the ladder.
The Council of Mortgage Lenders has suggested that the mortgage market review would have blocked 50 per cent of the mortgages approved five years ago.
The harder it gets for people to get mortgages the better the future that buy-to-let has. Despite the economic doom and gloom, the UK population is still growing and people need somewhere to live and people are living longer. If people cannot buy, they still need somewhere to live and so landlords will have a guaranteed source of tenants.
The surviving landlords will understand what sort of properties there is demand for, unlike those who bought newbuild flats off plan as it seemed like it worked for the person sitting next to them at a dinner party.
Jonathan Cornell is head of communications at First Action Finance