Bob Young is managing director of CHL Mortgages
As competition in the buy-to-let market continues to hot up we are starting to witness lenders try a number of different tactics to steal a march on their rivals.
In the last few weeks alone we’ve seen BM Solutions remove its minimum income requirements and a number of other lenders fighting to offer the most competitive fixed rates with 2.49% offered by The Mortgage Works being the market leader at present. But another area where lenders are now trying to differentiate themselves from their contemporaries is the length of their tenancy agreements.
Woolwich was the first player to stick its head above the parapet in this regard in offering 24-month terms as opposed to the industry standard 12 months but The Mortgage Works – fresh from its eye-catching rate activity – has gone one better and increased its maximum tenancy limit to 36 months.
It is easy to be cynical about such developments and dismiss them simply as an attempt to secure more business but I prefer to applaud The Mortgage Works for using such innovation to distance themselves from the pack.
There are a number of reasons why longer tenancy agreements are a good idea but chief among them is the greater security it affords to both tenants and landlords. People in their twenties and thirties are often described as ‘generation rent’ and many families who are unable to buy now live in rented accommodation so they are likely to appreciate the reassurance of not having to renew their agreement annually, not to mention that longer terms enable them to budget more easily.
Families who may have children in local schools for example will also be more confident that their lives are less likely to be disrupted by potential moves.
Similarly, landlords can rest assured that they won’t have to administer the necessary paperwork – or even find new tenants – once a year and it will allow them to adopt a longer term view on their businesses too.
Although securing the right tenants is one of the most important parts of a successful property investment, landlords don’t want to be continually sourcing new people so the ability to sign tenants up for longer is sure to go down well.
Recent research by the National Landlords Association suggests almost half of all tenancies last in excess of four years anyway so it makes sense for all involved to offer longer-term arrangements.
The NLA’s findings also revealed that four in five landlords would be willing to utilise longer tenancies for existing tenants with good track records.
With no sign of the current buy-to-let purple patch letting up, there are bound to be more lenders exploring ways they can adjust criteria in order to appeal to wider audiences.
The last thing we want to see is providers abandoning sound business principles and sensible lending practice in the pursuit of volumes, but experimenting with criteria changes around the margins is both expected and welcome.
And, as is the case with the length of tenancy arrangements, it is tenants who stand to benefit just as much as landlords themselves.
