The countdown to MMR has begun in earnest and, as our industry is prone to do, we are busy speculating on how these regulatory changes will impact on the mortgage market and, rather importantly, its ability to keep on lending. Certainly, a close watchful eye is being kept on how lenders will interpret the affordability rules and, as the recent media furore surrounding Kensington’s new affordability documentation shows, brokers may not be too enamoured of the extra in-depth client information that many will be requiring.
With even the CML suggesting there could be a lending ‘wobble’ around the time of April’s MMR implementation there have been suggestions that lenders will be focusing more on the buy-to-let market in 2014 than they have done in recent times. The argument appears to be that residential lenders will be curtailing their acceptance of more complex resi cases as they seek to get their systems MMR-compliant and to ensure they are abiding by the new rules. However, with lending targets already ramped up for 2014 what will fill the gap left by a decision to momentarily focus on vanilla residential loans?
The answer is apparently buy-to-let with the industry whispers suggesting lender representatives have been preparing the intermediary sector for a buy-to-let marketing push in the Spring. Is this perhaps why some lenders have increased their procuration fees for buy-to-let business recently? And if high-street lenders in particular are looking to buy-to-let to fill a regulated residential mortgage business hole are we likely to see further changes (dare I say watering down) to criteria in order to make their buy-to-let propositions more attractive?
The answer, I’m afraid to say, is likely to be yes because as far as high-street lenders are concerned there is still a mis-understanding of the buy-to-let sector and from a marketing perspective it tends to treat it in a non-specialist way. However, buy-to-let is not simply an offshoot of residential loans and it would be a big mistake to move down a road whereby product criteria is loosened and pricing and proc fees become the only marketing tool lenders can think of to generate business. I worry that this is only likely to escalate a pricing race to the bottom and a criteria jump up the risk curve – we all know where this led the industry pre-2008.
Moving to a more buy-to-let focused approach simply because of regulatory issues in ‘residential land’ also tends to show that the stock response of some lenders to buy-to-let business – i.e. ‘we treat it the same as our regulated loans’ – is not really the case. Attempting to fill a lending gap with buy-to-let volumes show lenders don’t treat their business the same because it appears to be that increased regulatory responsibilities in one area mean they feel it is easier to bring in and process unregulated business. To my mind the level of diligence and underwriting expertise required to write buy-to-let business is much more specialist than for residential and therefore the systems and controls should be at least the same, if not more robust, than their residential counterparts.
One of the other likely fallouts from a mid-year shift to buy-to-let is also the mainstream media headlines it is likely to generate. The high-street lenders have received good PR over the last few months for bringing more high LTV products to market which can only be good for the first-time buyer market. However, the media music is already starting to change with the assumption that high-street lenders shifting their focus to buy-to-let can only be detrimental to the first-time buyer market.
Therefore, while we should be positive about increased competition in the buy-to-let sector we should not be sending out the message that this is a temporary ‘business grab’ that tides certain lenders over while they get to grips with MMR. We preach the long-term investment message to our landlord borrowers telling them buy-to-let involvement is not about seeking short-term gains – I therefore think it’s important lenders are not adopting a ‘fill your boots’ mentality to securing business simply because it looks like it could tide them over a potentially sticky regulatory patch.
Bob Young is managing director of CHL Mortgages
