Lenders that understand the wider property market and skilfully serve a diverse range of needs are more crucial than ever, says Andrew Ferguson of West One Buy-to-Let
The buy-to-let market over the past few years has seen an increasing demand for specialist lenders and their more flexible and diverse products and lending criteria.
Arguably, around 50 per cent of the market would be classed as specialist today, so about £18bn of lending is addressable for specialist lenders, assuming annual completions this year of around £36bn (£41bn in 2019). No wonder we have seen a raft of new entrants, with the specialist BTL market segment more than doubling in five years. Lenders are keen to get a slice of the higher-yielding specialist pie, supporting a broad range of needs, including portfolio landlords, limited company applications, HMO/MUFB properties, holiday/short-term lets, large loans and expat applications.
Landlords face the well-documented challenges around financial and regulatory matters that make running a profitable BTL business more of a challenge, so having a clear strategy to maximise income and reduce costs is more important than ever. Taking advice from professionals, such as solicitors and accountants, is key to ensuring landlords have the right strategy for their business.
The growth of larger-scale landlords and the reduction in small-scale amateur landlords are a reflection of the increased professionalism of the sector, which was former chancellor George Osborne’s desire, and I am sure this makes the market more resilient to deal with bumps in the road, even significant ones like Covid.
In line with market trends pre-Covid, landlords are still seeking flexible and pragmatic underwriting. Covid has probably increased the need for a more personalised underwriting approach where a more holistic view is required. The credit check, not credit scored, approach commands a premium where the ability to assess the bigger picture is important.
Lenders are assessing their own risk appetite on an ongoing basis, planning for various scenarios, positive and negative. We are no different and are cautiously optimistic about BTL and its resilience to the current climate. We are comfortable to have relaunched most of our pre-Covid lending criteria to support a competitive product range, with more plans to help landlords in place for later this year.
There has always been a need for skilled underwriting, but perhaps even more so now, and the depth of experience within our broader property business means we really understand the market from a short- and long-term perspective. We are seeing strong demand for bridging and development exits onto term BTL products, where clients are keen to hold more units for rental in the current climate.
That depth of experience and proven underwriting pedigree have served us well from a risk perspective and, crucially as a non-bank lender, have supported us in developing strong funder relationships, which are very important. Working closely and effectively with funding partners is critical, particularly if there is a second lockdown and a need to navigate through more uncertain times.
Sustainability is key at the moment, so making sure landlords can deal with some bumps in the road and some void periods is right for our clients and us. Flexibility and pragmatism are important traits for specialist lenders like West One, but equally we need to lend prudently and responsibly.
In summary, lenders that truly understand the wider property market and can skilfully serve a diverse range of needs are more important than ever. Hopefully, good times remain ahead for specialist lenders.