Buy-to-let margins to improve
Buy-to-let pricing has become too cheap but rates are likely to rise in the next year and a half, a panel of experts at FSE London indicated.
Rob Jupp, chief executive of Brightstar, said buy-to-let is an area he is cautious about because the margins are getting too thin.
He said: “Some lenders price buy-to-let similarly to resi. I’ve spent 15 years doing buy-to-lets where there was a 150, 200 basis points difference between resi and buy-to-let and that seems to be evaporated.
“It could be more about the quality of the asset and the fact buy-to-let is now with professional landlords.
“That’s the only thing I’m slightly nervous about and I think the margin in buy-to-let has got slightly too cheap and that has been one of the major factors for the dysfunctional housing market where there’s huge oversupplied buy-to-let mortgages at cheap margins.”
David Whittaker, chief executive of Keystone Property Finance, said margin will start to come back in, indicating that buy-to-let rates could rise.
He said: “I think borrowers have had this fantastic 12 months because there’s been this fantastic margin of compression.
“As rates go up generally over the next year and a half, some of that margin will start to come back in so I think generally pricing as a true margin, whether interest margin and proc fees, I think margins will start to harden up.”
Alan Cleary, managing director at Precise, said that it’s similar to the specialist marketswhere he’s seen 100 basis points disappear out of margin.
He said: “At the start of the cycle margins were good. As competition came about, margins got squeezed and that’s often good for the consumer.
“I don’t think we’ve got to a point where it’s a problem. We’ve got 300 basis points margin across what we do so I think the specialist market has got nowhere near [the stage of] not pricing for risk appropriately.”
Cleary added that amateur landlords aren’t aware of the impact of the buy-to-let tax changes, but professionals are.
Louisa Sedgwick, director of sales, mortgages, Vida Homeloans, reassured that the industry is heavily regulated so everything will likely be fine.
She added: “You’ll start to see some other lenders go up the risk curve doing some things a little different than mainstream lenders but at the end of the day they’re all regulated so if they’re working in a residential regulated environment, they can’t go too far up the risk curve without the regulator starting to ask some questions.
“Maybe this is less so in the buy-to-let market which is why you’re probably seeing some differences in some of the regulated and non-regulated lenders and the way they look at rental calculations as an example.
“You might see some lenders going up the risk curve but the bottom line is they’re still heavily regulated.”