Do Banks Want to Lend to Landlords?
Owner-occupier mortgages have been more difficult to acquire recently. However, banks are offering better deals to landlords, hoping to cash in on the rising buy-to-let market.
Barclays are one of the banks who are amending their offers on buy-to-let mortgages. Their fixed-rate mortgages on buy-to-let properties have decreased by up to 1.1%. Barclays’ two-year deals at 75% loan-to-value is dropping from 5.29% to 4.19%, with their two-year 60% loan-to-value deal declining to 3.69% from 3.88%.
Their 75% loan-to-value rate is especially popular with landlords, says Barclays. Andy Gray, Managing Director of Mortgages, says: “These new products will help customers to save money and make investment in the buy-to-let market more affordable.”1
Precise, a specialist in buy-to-let lending, has also changed their conditions for loans. In the past, they required a minimum income of £25,000 per annum, before lending. Now, these requests are lenient, with decisions being made on three months’ bank statements, reviewing each individual case on its merits.
Alan Cleary, Managing Director of Precise, explains: “[It] is a positive move towards common sense lending where we assess if the loan is affordable, rather than imposing an arbitrary rule on our borrowers.”1
Unregulated Lettings Industry like the Wild West
As rents are continuing to rise, and banks are showing confidence in the buy-to-let market, more deals could be made in the next few months and even years, which could prove effective to new landlords trying to break into the sector.
It is also claimed that building societies are favouring landlords over homeowners.
The Building Societies Association (BSA) says that almost all of their members offer buy-to-let mortgages. A spokesperson says: “Building societies were originally establishes to house local communities, and the sector still has a keen interest in supporting communities which offer a choice of different forms of housing, for some people, renting is a choice rather than a necessity.”2
However, the reality is often that many people do not want to be renting in the long term, and are trapped by a difficult market for first time buyers.
It isn’t hard to comprehend why building societies are eager to offer buy-to-let mortgages. Lending to landlords can often earn a society higher fees than to first time buyers, and are considered lower risk.
One in three of the BSA’s members’ loans were to first time buyers last year, they say. They also claim that lending to one area (buy-to-lets) is not at the expense of another (first time buyers). Despite this, it is clear that the kind of property a buy-to-let investor will buy is exactly the type a first time buyer may be looking for.
As Britain is building very few houses, when a loan is given to a landlord, an owner-occupier is losing another property option. Additionally, buy-to-let is still unregulated and loans are calculated with cheap interest-only rates. At the same time, first time buyers have a post-financial crisis to deal with.
If buy-to-let was limited to new build houses, money could be spent strengthening the construction industry, and halting price rises.
1 http://www.justlandlords.co.uk/news/Banks-Keen-to-Lend-to-Landlords-1515.html
