The buy-to-let market has evolved considerably over recent years and so have the products available to landlords. For instance, limited company products have helped those investors who want to use a special purpose vehicle for tax purposes, while specialist products for those with Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs) are now widely available.
While buy-to-let is nowadays such a fundamental part of the UK mortgage market, the products that fall under Consumer Buy-to-let (CBTL) are all too often overlooked. I’d argue this is because the assumption is that buy-to-let is just for landlords looking to rent a property that they own out to (usually) strangers and on a commercial basis. While this is indeed the situation for the majority of buy-to-let cases, there are other valid circumstances where property is let out but would not be eligible for a traditional buy-to-let mortgage.
In essence, your typical buy-to-let mortgage is a commercial arrangement and not regulated by the Financial Conduct Authority (FCA). One can argue that this is fundamentally because if the landlord fails with their investment strategy and the buy-to-let is repossessed by the mortgage lender, then they don’t lose the roof over their head.
In contrast, CBTL mortgages came into regulatory existence in 2016 and are regulated by the FCA like a typical residential mortgage, however; this is because the ‘landlord’ may be an accidental one – they never intended to become a landlord – and therefore they are deemed as being more vulnerable. They may have originally purchased the property with absolutely no intention to rent it out, or don’t own any other properties that are being rented. In addition, if they (or other family members) have lived in the property for a certain amount of time then it could well fall under the CBTL regulations.
Because CBTL deals are regulated in the same way as residential mortgages, those lenders offering CBTL generally take the same approach to risk. In mainland Britain, the majority of CBTL providers are the smaller building societies and while they are providing a much-needed service to their local communities and beyond, they can take a very conservative approach to criteria. This means that many potential CBTL borrowers are being turned down for a mortgage despite their willingness and ability to pay.
At Central Trust, our mantra is ‘serving the underserved’. As a specialist lender we are used to degrees of complexity in borrowers and cases and can take a more nuanced view to areas where there is traditionally a restricted lending appetite. For instance, we look at affordability and income in a more holistic way and can usually lend more than a building society. Similarly, we accept adverse credit as part of our strategy to help borrowers to ‘repair and rebuild’. We also offer CBTL on both first and second charges.
We’re constantly looking at ways we can further enhance our offering. For instance, last month we increased the maximum LTVs on our 0 and 1 Status products to 80% and revamped our existing AVM criteria, now available for loans up to £100,000 at 75% LTV, subject to a confidence score of 6 and above. These changes mean we’re catering to an even wider range of borrowers and also that cases should progress even more quickly.
The CBTL market may well be made up of a large proportion of ‘accidental’ landlords who are ignored by large swathes of the buy-to-let community but I hope brokers now realise that there are lenders out there like Central Trust to whom they’re just as important as professional buy-to-let investors. There is a sizeable market out there, looking for help from intermediaries.
Maeve Ward is director of commercial operations at Central Trust