Octopus Property has reported an increase in Agreements In Principle (AIPs) for its two to five-year buy-to-let products during the final quarter of 2016.
In the last three months of 2016, Octopus Property issued 233 AIPs compared to 108 during the same period the previous year – an increase of 115%. In the first eight working days of January 2017, it issued 32 AIPs for its buy-to-let loans.
On 1 January 2017, the Prudential Regulation Authority’s new affordability regulations came into play, making it harder for landlords to finance buy-to-let projects through mainstream lenders due to enhanced stress-testing, changes to underwriting requirements and uncertainty as to how the new rules should be enacted.
This is especially the case with larger loans and ‘non-standard’ borrowers with unconventional circumstances, such as semi-commercial, rental shortfalls, first time landlords, Houses of Multiple Occupancy (HMOs), foreign nationals and company applications, all areas in which Octopus Property specialises.
Key to Octopus Property’s buy-to-let range is a two-year product charging 6.99% p.a. Borrowers can choose to defer 2% of the interest payable, creating an effective pay rate of 4.99%pa. This product applies an Interest Cover Ratio (ICR) of 100% of pay rate.
The increase in interest for Octopus’s buy-to-let products contributed to the significant increase in AIPs during 2016 as a whole: Octopus Property issued 2405 AIPs last year compared to the previous annual high of 1656 during 2015 – a rise of 45%.
“The buy-to-let sector has changed fundamentally over the past year or two,” said Mario Berti, CEO, Octopus Property.
“Alongside the raft of tax changes, financing for landlords has become considerably more challenging. This is almost certainly the reason for the surge in demand for our buy-to-let products in the latter stages of 2016 and early days of 2017.
“We cater for buy-to-let borrowers with less conventional circumstances that need more bespoke underwriting and for whom the high street has become a more difficult place to borrow, all the more so since the new regulations came into force on 1 January. It’s in this type of conservative lending climate that specialist lenders like ourselves can outperform.”