I read recently that Stonebridge Group, a network with a sizeable number of AR firms and advisers, had seen its buy-to-let business volumes holding up throughout the course of 2017. It seemed like an interesting counterpoint to the ongoing messaging which attempts to show the buy-to-let market in some sort of irreversible decline – clearly we all know that purchase activity has been curtailed by regulatory and political changes but that doesn’t mean purchases aren’t happening, and of course we have a highly competitive and active remortgage market at present. Stonebridge itself said that, of its buy-to-let business, 78% was remortgage activity and I suspect there would be a similar picture across many buy-to-let advice firms.
Purchases – certainly from the level of business we are seeing – are now much more likely to be made through a limited company vehicle and this may well be the reasoning behind The Mortgage Works’ re-entry into this part of the buy-to-let market. It may just be a limited pilot at the moment but the rates appear competitive at maximum LTVs of 75% and it will be interesting to see how advisers react to such a move and the $64k question will be around the ease of use/the underwriting procedures/criteria and the adviser/client journey in terms of navigating a case through the system.
What does make this move interesting is that it appears to buck a widely-held industry view that the ‘mainstream’ buy-to-let lenders would not want to ‘play’ in this part of the market. This pilot seems to prove there is an appetite to at least look at its options and the business it can write – it does remain to be seen of course just how big that appetite to lend to limited companies is and whether it has the necessary systems/personnel/knowledge to be able to make a good fist of what can be a complicated transaction.
It may well be that the specialists in this part of the sector might not have it all their own way, however while competition should always be welcomed given the increase in choice, I suspect for advisers the proof of the pudding will be in the eating in terms of placing cases with TMW. Let’s not forget that it’s been over six years since it offered these types of products and the market has moved on considerably since then, especially with the PRA underwriting changes which will complicate matters a lot. Add in the fact that most limited company purchasers are also professional/portfolio landlords and you have an extra level of underwriting proficiency to incorporate into systems and processes.
In this market I’m still of the opinion that simplicity and ease of use is still a huge asset for lenders who want to lend to limited companies – having a recent history of activity, understanding and experience in this area counts for a lot, especially when you are weighing up a lender against recent (or existing) entrants who are effectively starting from scratch and learning ‘on the job’ with your cases.
That said, there is always room for new entrants and TMW might well have a strong proposition that allows them to take market share – it’s certainly big enough to make an impact and I suspect advisers will want to try them out because of their size/scale and their longevity in the standard buy-to-let market.
Let’s however be clear that this part of the market is different – it does require a different level of knowledge, a different skill-set from staff, and a willingness to delve far deeper into a case than a system set up for ‘mainstream’ buy-to-let will allow. These cases require human interaction and (often) quite a lot of it, which is why specialists like us continue to serve this market, and acquire quality business in it.
As advisers you’ll know only too well what to expect from this lender but it will be interesting to see how it adapts to the very different requirements of limited company lending, and ultimately I suspect its success will not lie in its pricing but in its ability to make the process as seamless and trouble-free for all stakeholders.
Bob Young is chief executive officer of Fleet Mortgages