With the year nearly half over – if you don’t believe me check your calendar – perhaps now is the time to review how your business has gone in the first six months and plan and prepare for what the rest of 2014 might bring. I’ll freely admit however that judging what has gone before could be rather tricky because to my mind this year so far can be split into two parts – pre-MMR and post-MMR.
Now you might think what has MMR got to do with the unregulated buy-to-let sector and my answer would have to be, ‘A great deal’. In the UK we have an inter-connected mortgage market in which the ebbs and sways of one sector, most notably residential, have an immediate impact on all others. In that regard, think of MMR as the butterfly flapping its wings in one corner of the globe but causing significant impact on all other areas.
The post-MMR period is but a matter of a couple of months old and therefore, even now, it is hard to give a proper review of what has taken place in the new environment. However it seems pretty obvious that, compared to the first four months of the year we have seen residential borrowers experiencing a much tighter marketplace meaning it is now more difficult to get the size of loan you could have pre-MMR, the criteria of some lenders is noticeably different and therefore the level of business completed has dropped off because of this.
I was of the opinion that during the period immediately pre-MMR, and the months that followed, we may see a shift from those lenders who operate in both the residential and buy-to-let sectors. It seemed to be that overall annual lending targets would remain the same however lenders would be pulling back from residential in order to ensure MMR compliance, and therefore would look to fill that lending gap with a greater appetite in the buy-to-let market.
Again it’s too early to say if this has been the case. The latest buy-to-let lending figures from the CML only cover April and so can’t give us an idea of the post-MMR market just yet. However the figures do show a consistency in the sector – buy-to-let lending in April totalled £2.2 billion, a figure almost identical to that lent in March but considerably up year-on-year as you might expect.
It will however be the subsequent months’ data that shows whether we can see a noticeable increase in buy-to-let lending at the expense of a pull back in the residential space. I suspect in the immediate months post-April 26th it will not be so visible but will probably improve in the months ahead and I am expecting to see a particularly strong Q3 and Q4 for the buy-to-let market. Anecdotally, I am hearing that many advisers are experiencing stronger interest in buy-to-let and there has certainly been a greater focus on this market from lenders and their BDMs.
The good news for advisers is that, despite all the frustrations they might be feeling with some lenders and their ability to get loans accepted post-MMR, they are now right at the epicentre of the market and in effect are seen as the go-to distribution channel for all mortgage business. How often have we felt able to say that over the course of the last five to six years? The other good news is that while technically buy-to-let might be still seen as a ‘niche’ in reality for most lenders it is firmly part of the mainstream – lenders recognise the margin they can make and they are also able to offer products specifically designed for certain borrowers/property types, etc, which can distinguish them from competitors and secure strong business levels.
This state of affairs is unlikely to change anytime soon and therefore advisers looking to have a strong second half of 2014 would do well to focus on the buy-to-let opportunities available, increased lender appetite and the growing number of clients seeking a quality service in this area.
Bob Young is managing director of CHL Mortgages