Ben Thompson, managing director of L&G’s mortgage club, said the decision came after a review of the medium and long term prospects for the mortgage market.
He said: “As a large mortgage distributor we have to be aware of what will happen in the medium and long term and decide what markets are likely to grow over these periods.
“Much of our thinking is around the future growth of the buy-to-let sector and we have decided we want to be a leading distributor of buy-to-let within three years rather than a leading distributor which also does buy-to-let.”
Thompson said L&G had been involved in talks with buy-to-let specialist lender Paragon, which had helped shape this thinking.
Paragon has long said the balance of homeownership in the UK is shifting towards more people renting privately for a combination of reasons including rising immigration, the growth of the UK’s student population as well as social factors meaning younger people preferred the flexibility of renting.
John Heron, managing director of Paragon Mortgages, said: “The last couple of weeks have brought this more sharply into focus with government statistics showing 17.4% of English is housing now privately rented.
“This is a remarkable change around in housing terms. In the late 1980s the private rented sector represented just 8% of housing making it a very poor relation of homeownership.
“Given that housing is a long term market this speed of change is remarkable.”
Thompson said L&G’s working relationship with Paragon dated back to 1997 when he admitted many advisers felt financial planning for tenants and landlords wasn’t seen as a particularly attractive prospects.
But this was changing he said.
“Fast forward to now and the profile of your average tenant is very different,” he said. “They are older and more likely to have children and therefore need protection and be looking at investments.
“This is a completely different calibre of person who is much more likely to buy into financial planning. The social change is happening and advisers need to keep pace with this.”
Thompson added that part of L&G’s wish to drive buy-to-let business was from the origination perspective.
He said: “Quality lending being done in the buy-to-let sector. It’s come through a significant down turn and the business being introduced today is double protected by a rental guarantee and the individual profile and earnings capability.”
Heron reiterated this saying: “In the run up to the credit crisis there was a lot of chatter about the quality of buy-to-let – I even remember the Financial Services Authority using the phrase ‘toxic product’.
“But buy-to-let has now been seen to perform and its resilience is well established. That’s clearly one of the things attracting new lenders to this sector.”
Product
Thompson said as part of this drive to build L&G’s buy-to-let specialism, the mortgage club would be looking to secure exclusives for its members.
He said: “L&G is looking at producing more exclusive product and we are constantly monitoring lenders that are considering extending into the buy-to-let market.
“We do a lot of work in the background with lenders to help them market and design products and we are in ongoing talks with mutuals thinking about extending later this year.”
Thompson would not confirm which mutuals were looking at launching buy-to-let propositions but said: “We’re definitely doing lots together with Paragon on the product side.”
Heron added that although Paragon was “not quite in exclusive territory yet” he did expect this to be a possible route in the future.
He said: “I would expect our collaboration with L&G to lead down that route in due course.”
Workshops
L&G also confirmed plans to hold adviser workshops designed to help existing buy-to-let advisers expand their client bases as well as offer training to residential advisers looking at doing more buy-to-let mortgages in the future.
Heron said Paragon and L&G held a joint seminar on buy-to-let in London held in June and planned more in the same mode.
He said: “The objective is to educate advisers, give them context of whole market. What are tectonic plates doing in housing market? What does it mean for their business? What landlords are doing?
“We found there was a desire to understand more about the difference in profile between professional landlords and smaller investors.”
Thompson said details of regional seminars would be announced later this year.
