News & Views

Interview with Matthew Anderson

The buy-to-let market is booming again but what's the real reason behind the resurgence and how long will it last? Fincorp director Matthew Anderson shares his thoughts.
Buy-to-let is making a comeback, is that solely because would-be buyers can't get on to the property ladder or is it more than that?
It's a number of things. Recently the National Housing Federation has released data confirming that not only are first-time buyers continuing to struggle to buy but even their parents are finding it difficult to help. We're moving towards having a generation of renters. But it's also because there is a greater availability of buy-to-let products and with interest rates still so low the returns on buy-to-let are very attractive. It's a combination of all these things.
Lots of reports are claiming the UK is moving towards having a renting culture like much of Europe. Will this generation get used to renting?
I think they will. Until recently first-time buyers were being helped by the Bank of Mum and Dad but they're finding it difficult now. It's difficult to release enough equity in their homes and the amount of deposit required by lenders means even the Bank of Mum and Dad angle is prohibited, especially if you have three or four children - how can you find enough to help all of them with their deposits? It's a difficult time.
How can bridging help?
A lot of buy-to-let lenders will lend against purchase price regardless of value. Landlords can buy at market value, hold on to it for a while then refinance it. That's where bridging can help.
Is it dangerous to use bridging to purchase a buy-to-let property in this climate?
Professional landlords will have their exit strategy lined up. Not many say "I'll get it refinanced but I don't know where from yet". People are much more aware. It's important to differentiate between professional landlords and those people who just think property is a good idea. Landlords have a track record. It's not just about finance now, you have to prove you know what you're doing. I know that from my own experience as a landlord. You need to show what agents you use, show you're income, show how long you've been doing it. In the past people though it was easy to make money from buy-to-let, they assumed a rental property will always be rented but that's not always the case.
How much of your business is for buy-to-let?
I'd say 10 to 20% enquires, a year ago that was 0%.
When will the buy-to-let boom end?
It will end when mortgage lenders are happy to provide more residential mortgages with smaller deposits. There's never a really strong buy-to-let market at the same time as a really strong residential market. It's one or the other.

Is buy-to-let booming again?

It's been a bumpy few years for the buy-to-let sector. As the whole of the property market was brought to its knees by the credit crunch the buy-to-let sector was no exception. As funders battened down the hatches and shut up shop - some literally - potential landlords had to put their dreams of owning a rental property on hold while the more experienced in the sector had to abandon any growth plans. Even when the market started to slowly recover lenders took the unusual decision to restrain the experienced landlords - in order to curtail any huge property portfolios for fear of another dip - while lending very cautiously to those new to the market.
Many reports have dubbed this generation " generation rent ". Indeed, some market commentators have even suggested the UK may begin to follow the example of its European neighbours and abandon hopes of being homeowners in favour of a lifetime of renting. "There's no denying that weak confidence in the housing market and economy generally coupled with daunting hurdles for first-time buyers in meeting big deposit requirements has led to a gradual decline in the level of home ownership in the UK," says David Hollingworth, mortgage specialist at brokerage London & Country. "There's no sign that life will get much easier in the short term as weak supply of property continues to maintain relatively stable prices. Over time that may mean that more will have to contend with either longer in rented property or perhaps even give up on home ownership altogether. We're already seeing first time buyers get older but some of that may also stem from a desire to be more flexible for longer before putting down roots."
Despite the hurdles presented to them Melanie Bien, director of mortgage broker Private Finance, is doubtful of this generation giving up on the dream of home ownership. "Although it is difficult for first-time buyers to get on the property ladder at the moment, it is highly unlikely that this will turn would-be buyers into a generation of renters," she says. "It is just not in our culture. The rental market is so insecure with landlords able to raise rents at short notice or even evict tenants, whereas being an owner-occupier gives security of tenure. You also own an asset that tends to appreciate in value over time, even allowing for the ups and downs of the market."
But while the desire to own a home may not have diminished, the ability to certainly has. At present there are just a handful of 90% residential mortgages on the market and even less of the 95% option. In contrast the buy-to-let market is flourishing. The return to the market of stalwart lenders like Paragon and the appearance of new lenders in the market place is boosting confidence.
The buy-to-let opportunity
This begs the question, if the number of renters is rising, is now the time for amateur landlords to try their hands at buy-to-let? "The rental sector is looking promising for investors, with demand from tenants who can't afford to buy themselves pushing up rents," says Bien. "Buy-to-let lenders are also returning to the sector, with more products available at better rates and with easier rental criteria." However, Bien says those who are tempted to get into the sector will need a sizeable deposit - at least 25 to 40% of the mortgage amount - and should do their research very carefully to ensure they buy in an area rich with potential tenants.
"There should also be money put aside for void periods when you don't have tenants and must pay the mortgage yourself," adds Bien. And, according to Hollingworth, buy-to-let should only be viewed as a long term investment with no likelihood of major capital growth on the cards in the near term. "It's important to work out the costs and consider the risks carefully but lenders are certainly interested in buy-to-let business and the right property can make a good, long term investment," he says.
While amateur landlords - with sufficient deposits - may get a warm welcome from lenders, interestingly more experienced landlords may still come up against a few hurdles. "The tightening in the market has seen criteria toughen up generally and lenders pull away from taking any higher risk than necessary," explains Hollingworth. Rather than take on heavy exposure to one individual with a large portfolio lenders sought to spread that risk and reduced the maximum lending levels available especially. That does mean that portfolio landlords will need to seek advice in considering their mortgage options in the tighter market.
Jonathan Cornell, head of communications at First Action Finance says most lenders want to concentrate on amateurs because they see professional landlords with large portfolios as a commercial proposition rather than as part of their normal mortgage lending. "Once an amateur has a few properties then it's a lot harder for them to get mortgage funding, however some lenders are excellent at lending to professional landlords."
A role for bridging finance
One route many professional landlords have taken in the past has been to buy run-down properties at bargain prices before renovating and renting them out. But this has posed a problem since the credit crunch hit as lenders tighten criteria. "Buy-to-let loans are only granted where a property is habitable and ready to let," says Bien. "A landlord buying a property that doesn't have a kitchen or bathroom, for example, would not be able to get a buy-to-let mortgage."
This is where short-term finance has come into the spotlight. "Bridging fills this gap, giving the investor funding that will enable them to do the necessary works before remortgaging with a traditional buy-to-let lender once the work is complete," says Bien. With bridging finance being used more than ever to aid buy-to-let transactions, the number of renters on the increase and buy-to-let lenders making a comeback it seems the buy-to-let market is indeed booming once more.
What the brokers say?
David Hollingworth, mortgage specialist, London & Country: One thing that the reports also pick up on though is that the vast majority still aspire to owning their own property and the security of tenure that comes with it. The question is really therefore whether ownership is a feasible option and how hard they work toward that goal.
Melanie Bien, director, Private Finance: No, I don't believe that will be the case. Although it is difficult to buy at the moment if you don't have a sizeable deposit and good credit history, the desire to own is still there.
Jonathan Cornell, head of communications, First Action Finance: I think culturally the UK is a property owning democracy and the majority of people will aspire to own their own home. However, with funding restricted and lenders being cautious there is little doubt that for many the dream of home ownership will be beyond a large number of people. This will move us closer to the continental model where most people rent.

Buy-to-let boom continues

The buy-to-let market in London is booming, research from the Association of Residential Letting Agents has revealed. The research found a third of landlords in Central London and the surrounding areas were more likely to buy more properties over the next year. Landlords surveyed also suggested the increase in buy-to-let business is also spreading across the country with the North East and the Midlands seeing increases in activity.