Lenders are rightly concerned about risk but the outlook for the mainstream residential sector is encouraging. The National Landlords Association says the fundamentals of the UK market remain strong, with average rents increasing by 13.8 per cent in the year to April. Demand for rental property is set to increase, as would-be first-time buyers are forced to rent for longer, which should further push up rents.
An established landlord is relatively low risk as far as the lender is concerned. They have experience of letting property and a track record of paying the mortgage. There is no danger of rental voids as the landlord will have tenants in place on an assured shorthold tenancy. This has two advantages. First, the rent will cover the mortgage and, second, it can be used instead of the surveyor’s valuation to support the rental assessment.
Taking on an established landlord with a good track record is an easy way of writing good quality business for the lender prepared to offer decently priced products but these lenders are thin on the ground.
Brokers have a part to play, as landlords find it harder to achieve competitively priced deals. It is all about taking a longer-term view and looking for quality repeat business rather than high turnover. Clients will want to regear in a year or two and develop their portfolios.
Newbuild is an area where opportunities are being missed. Lending has almost dried up as lenders are cautious about valuations. Housebuilders are putting projects on hold and laying off staff due to a dearth of buyers, yet now is a good time to buy if the buyer can negotiate on the price and has access to a decent deposit. It is possible to get a property for the fraction of the market price but this is no good to a buyer unless they can get the finance to make the purchase. In the sharedownership market, lenders will still lend on newbuild properties for owner-occupiers, which is supporting the market to an extent.
The Council of Mortgage Lenders proposes new standards to ensure that conveyancing and valuation processes capture the true value of newly built property. From September, lenders will require builders or developers to complete a new disclosure of incentives form, reinforced by the CML lenders’ handbook which sets out requirements for conveyancers acting on behalf of lenders. If lenders have confidence that valuations are reliable, this may give the market the kickstart it needs.
Mark Harris is managing director at Savills Private Finance