Buy to let sector will remain 'strong, sustainable and profitable'

Landlord Expert
By Landlord Expert November 29, 2010 15:10

It is clear that there is a somewhat renewed sense of optimism and positivity about the buy-to-let sector at present. Those who not so very long ago were lining up to suggest it was going the way of the dodo are now proclaiming that the future is in fact rosy.

One hesitates to use a profanity in Mortgage Solutions, but my reaction to the Damascene conversion of those who have been far too quick to give the last rites to buy to let is, ‘no s*** Sherlock'.

We have never wavered in our belief that the buy-to-let sector is here to stay and is also a strong, sustainable and profitable business to be involved with. I say this with the caveat that lending in this sector requires experience, know-how and an ability to recognise it is different to the residential sector and needs to be treated as such.

Those dearly departed lenders who thought mainstream sensibilities would be enough to succeed in what is a commercial arena realised far too late that the chasing of volume at the expense of common sense would only produce one result.

If we have seen any deaths within the sector, then they have been welcome. I am talking about the death of what we might term the property speculator or the buy-to-let speculator or, rather more crudely, the sucker property speculator.

Many rode the wave of house price increases throughout the first half of the past decade only to see the whole shaky edifice come crashing down when the credit crunch hit. If we have learnt anything from our recent past, it is that responsible lending and borrowing should always remain the norm and that, even with an increase in demand, we must not throw our lending principles out of the window.

Certainly, the only way we can make the sector work is along cautious, responsible lines, and this is truly a positive for buy to let at the moment.

Lenders who were once in thrall to the marketing and sales teams are now effectively ‘run' by the credit department. For the foreseeable future, this means no high-end LTV lending and no cheap pricing. The benefits of this approach are obvious and given that the basic drivers of buy to let are become increasingly positive we should be even more confident about the sector's future.

Let's be in no doubt that the private rental market is going to be increasingly important in the UK in the months and years ahead. Funding issues in the mainstream market make it even more difficult for purchasers to get on the housing ladder. Lenders' appetite to lend is unlikely to shift from its current levels.

Given that a number of those most active in the market will need to begin paying back the Bank of England next year, for example those who took part in the Special Liquidity Scheme, then we may see further downward pressure on residential lending volumes.

While there may be a few new lenders entering the fray next year they too are unlikely to be throwing money at the mortgage market and, if they have any sense, their criteria and pricing is unlikely to be different from the new norm.

Indeed, one would expect any new entrant to be ultra-cautious when dipping their toe into mortgages.

Add this to the coalition government's Comprehensive Spending Review, its impact on social housing and the likely migration to the private rental sector, and it is clear that demand for rental property is likely to rise significantly. Property supply issues will see rents rise which makes buy to let a strong, continuous investment option for professional landlords.

Clearly, the funding issues that are at play in the mainstream market are also problematic in the buy-to-let sector.

However, there will still be opportunities for landlords and it will be a question of how they grasp them.

One of the great intangibles for lenders, advisers and landlords has been the issue of regulation. While regulation of buy to let is still on the FSA's radar, I believe it has moved to the outer reaches of its field of vision. The defining question of what does it actually regulate remains particularly pertinent; if it chooses to regulate what is in fact a commercial loan, do the FSA then have to regulate all commercial loans?

There is also the ‘small' factor of the enormous amount the FSA - and its future incarnation - has on its plate, not just now but over the next few years. Does it really have the capacity or the appetite to take on buy to let regulation at present? I'd suggest not.

The point is that the buy-to-let sector remains in good shape with a positive outlook predicted. Those that are active in the market should be confident that the naysayers can be kept at bay for a great deal longer.

Bob Young is managing director of CHL Mortgages

Landlord Expert
By Landlord Expert November 29, 2010 15:10


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