David Whittaker of Mortgages for Business expects the amount of gross buy-to-let mortgage lending to fall over 2017/18, however the share of lending through limited companies should increase.
Speaking at the FSE Manchester event on Wednesday, Whittaker suggested that 2017 would see a slight reduction in the £40bn of buy-to-let lending completed in 2016, and that this would fall further in 2018. However, while he predicted 8-9% of this lending would be for limited company buy-to-let this year, he anticipates this rising to 20% through 2018.
Whittaker outlined data from two lenders – Keystone and Paragon – which both showed an increase in limited company buy-to-let purchase applications. He said Keystone’s figures revealed that in Q4 2015 one in four were through a limited company, while this figure had increase to three in four by Q4 2016. Data from Paragon suggested that more than half of its purchase applications were now through limited companies.
Whittaker urged advisers, and their clients, to be prepared for the second part of the PRA buy-to-let lending underwriting changes, which lenders have to introduce by the start of October. “We will all have to be prepared for much more paperwork,” said Whittaker. “It will feel like a Paragon mortgage application on speed.”
He was also concerned that lenders do not hold back in terms of their policies and processes for the underwriting changes. “Lenders have yet to announce on this,” he said, “But a good time to tell us is now so that we can prepare for it. We, and lenders, will be looking at a level of documentation we’ve never looked at before. Will there be a ‘common standard’ across all lenders? It’s unlikely, given they’ve never done this before.”
Whittaker also called for an industry debate about the appropriate level of reward for advisers given the increase in the amount of work required by buy-to-let cases.
He predicted that by mid-2018 15% of all vanilla buy-to-let business will have moved into the specialist, portfolio and complex sectors where the procuration fees are larger. “But, this is still not enough money for the greater work required,” he said. “A seismic change is going on, and we need a proper debate on this. If they [the lenders] pay us properly, they’ll get the work as they want it.”
Whittaker did however predict that procuration fees for buy-to-let business would be going up over the next 12 months. “At Keystone we will be paying extra and we will expect others to follow suit,” he said.