Sporting contests are often described as a ‘game of two halves’ which tends to suggest that the dominance one team has shown in the first half of the match has been overcome by the opposition in the second. It’s hard to know just what has changed between those two periods of play – has the manager thrown the tea-cups and given the players the hairdryer treatment in order to up their performance, or has there simply been one moment that swings momentum in the opposition’s favour?
Anyone looking at the buy-to-let market at present might think that it is being ‘dominated’ at present – certainly the ‘opposition’ its faced with the ongoing regulatory/political/economic/taxation changes has been formidable and a number of its ‘players’ have taken a step back when confronted by this. However, to say that the entire team is under the cosh, I think is a step too far, and if we’re extending the metaphor, then there are ‘teams within teams’ in buy-to-let that are not struggling at all but thriving.
While I fully accept that the changes have overall had an impact on transaction levels, I’d also posit that this is not across the entire market. Indeed, while the anecdotal evidence that’s appearing from the larger, vanilla-focused buy-to-let lenders suggests they are seeing a fall in lending because of less action in the ‘amateur landlord’ part of the market, this is quite clearly (from our perspective) not happening in our own specialist area.
The market talks a lot about advisers dabbling in certain parts of the market, but there are also borrower/investor ‘dabblers’ and what seems to have happened is those buy-to-let ‘dabblers’, the speculators, the occasional players who have (in the past) sought an involvement over the short-term, the ‘amateurs’, those hoping to secure quick capital growth via house price increases, are now choosing to speculate elsewhere.
This, of course, doesn’t mean the collapse of the entire buy-to-let market. But what it does mean is that the professionals, the portfolio landlords, those who view their investments across a longer-term timeframe, are continuing to grow their involvement, and they are (on the whole) not looking, or needing, vanilla-type products from mainstream buy-to-let lenders, but need specialist advice and products, in areas like limited company, HMO, multi-unit blocks and the like, and they get these from specialist lenders like ourselves.
So, when there is talk about falls in lending, this is much more likely to be mainstream buy-to-let lending rather than specialist. Indeed, at that specialist end where Fleet and others sit, we’re seeing a significant increase in portfolio borrowers, those with special purpose vehicles, those with HMO requirements, both remortgaging (in order to capital raise) and using that released money to continue to invest and add to portfolios. To give you a tangible example, our lending in Q4 last year was 30% up on the previous quarter, and that includes a month like December which tends to be a little quieter historically.
The underlying result of that shift to the professional/specialist side of buy-to-let can be evidenced all the time – why else would ‘mainstream’ lenders be moving back into limited company lending, why else would they be cutting rates in order to try and secure that market share? As advisers there needs to be an understanding that it’s this type of buy-to-let business that will most likely be the growth area for the sector – clearly individuals will still be involved but the ‘professionalisation’ of buy-to-let is the dominant force and therefore as advisers you need to ensure your services are fully aimed at this type of borrower.
Let’s not forget that it only takes four mortgaged properties to push a borrower into the ‘portfolio landlord’ definition, so those who previously might not have considered themselves such a landlord have now been redefined by the regulator and will, with many lenders, be facing far greater paperwork requirements. Again, working with a specialist lender like ourselves (which I should add is not asking for any extra information and is focused on keeping it simple) can be a real benefit, and therefore while the market is shifting there is always that support and resource available to make the most of your customer needs.
Bob Young is chief executive officer of Fleet Mortgages