Figures issues by the financial industry body UK Finance last week showed that buy-to-let lending fell by 11% during the first half of 2020 to £18.5 billion, with the number of gross advances down by a similar percentage at 114,300.
In normal times, a drop of 11% would obviously be a cause of great concern, but during this exceptional year we are living in, I think that the industry can breathe a slight sigh of relief that it wasn’t a lot worse.
It can be argued that a very healthy first quarter – where the value of gross advances was up substantially – masked the scarring of the second quarter, but the sector is in a better shape than many feared during the early days of lockdown.
As we know, the mortgage industry was essentially mothballed during April and May and the numbers reflect this – the number of buy-to-let completions for new purchase were down 54% in April compared to the same period in 2019. May was down 55%.
But June showed green shoots. Compared to June 2019, the number of completions was down 35%, but the numbers showed that the market was heading in the right direction.
Lockdown arguably made life more difficult for lenders operating in specialist buy-to-let than in the mainstream market. At the more complex end of the spectrum, lenders cannot rely on desktop valuations; they need to visit the property to properly kick its tyres and make sure it meets the desired standards.
Being restricted to your home obviously meant that was impossible, but I think the uptick in new completions in June is partly down to the release of pent-up demand, but also because we were able to proceed with applications for specialist properties, such as Houses in Multiple Occupation, made before lockdown.
That final month of the half year gave us the springboard into the second half, which is incredibly busy. I fully expect UK Finance Q3 numbers to show a buoyant rebound for the market; whether we can make that 11% deficit back is yet to be seen, but the indicators are all positive.
Rishi Sunak’s Stamp Duty holiday has no doubt acted as a stimulus for the sector and landlords are taking the opportunity to add complementary properties to their portfolios, as well as moving properties held in an individual name to incorporated status. The market is also reacting to strong levels of tenant demand are people are using this once in a lifetime event to review how and where they want to live.
The issue for lenders in the second half has not been whether there will be enough demand, it’s managing business levels so that it doesn’t impact service levels and funding capability. Lenders across the market are seeing strong levels of business and you have seen tinkering around LTVs, pricing and other criteria as market operators turn the new business taps on and off.
At Paragon, we have tried to remain consistent, making our criteria changes early and streamlining our product range to focus on our core offering. It’s a strategy that has worked for us, we have remained active throughout and our intermediaries have told us they have been pleased with the consistency. Operationally we have been robust and being part of a well-capitalised FTSE 250 bank has meant that funding hasn’t been an issue.
Of course, Paragon – and the wider sector – are not blind to the issues that could be on the horizon. The various government support schemes are coming to an end and we are mindful of how these may impact on tenants that occupy our customers’ properties. We are yet to see whether the winter flu season will lead to more local lockdowns and, of course, Brexit nears ever closer.
But the sector is positive and on the front foot. It is certainly in a stronger shape than many could have anticipated during those dark days of the early pandemic.
Richard Rowntree is managing director of mortgages at Paragon Bank