Advisers need to be adaptable in a changing BTL market, says banking director
Clients will need their brokers more than ever this year to navigate a changing buy-to-let market, a bank executive suggests.
Conor McDermott (pictured), who is the new director of SME lending at LHV Bank, believes intermediaries have to remain adaptable to meet the changes, but identifies that there are opportunities to be explored.
LHV Bank offers commercial real estate investment loans and trading loans from £0.5 million to small and medium-sized businesses in the UK, and is now extending its offering, by focussing on the specialist buy-to-let sector.
How a higher interest rate is changing the market
“The shift towards a higher interest rate environment has posed a challenge to the overall market and has expedited the professionalisation of the buy-to-let industry,” McDermott told Mortgage Introducer.
“The broker market in the UK has proved to be adaptable in the past, and this year, it will require their input more than ever to help clients navigate the changing environment. The ability to assist across multiple niche areas of buy-to-let, as clients seek higher yields to stay ahead of the higher interest rates will be crucial. At LHV, with the ability to assess complex deals across multiple asset classes, we are well-placed to assist brokers in the transition.”
He continued: “Regarding the buy-to-let sector, (the trade association) UK Finance is predicting a significant decline in new purchases. However, with a continued focus on professionalisation, there are opportunities in the industry, particularly in areas that were once considered niche, such as MUBs (multi-unit blocks) and professional HMOs (houses in multiple occupation), as well as larger portfolios.”
How should lenders respond to market changes?
It’s not simply brokers who will have to be adaptable, according to McDermott.
“As lending volumes decrease, many existing lenders will need to adapt to the changing landscape and focus on more complex, higher value business if they wish to maintain their lending volumes,” he considered. “In my opinion, we are well-prepared for this change, and I believe that those who are able to adapt and evolve will be the ones who succeed in the long run.”
The sector’s resilience is ‘remarkable’, in McDermott’s view – and this, he believes, bodes well for the future.
“As long as individuals require high-quality housing, there will always be a demand for the private rental sector to provide a valuable service,” he reasoned. “I am really excited about this year and how we can support our clients in the inevitable opportunity turmoil provides.”
McDermott is clear about what he wants in terms of government support for the sector, particularly around Section 21, the notice a landlord must give to their tenant to begin the process to take possession of a property.
“The delivery of a robust system to supplement the changes in Section 21 will be critical,” he urged. “There remains a severe shortage of good quality, affordable housing in the UK, and supporting the house-building sector, in particular, should be the highest priority.”
LHV has an established team in Manchester and has just made its first hires to build out a London team. Among its new team members are two seasoned relationship managers: Savvas Nicola, previously of Lloyds Bank and Metro Bank, and Edwin Yamoah, formerly of Santander.
McDermott has spent over two decades in the commercial lending market, with a diverse career supporting small and medium-sized businesses in the UK across various sectors. Following his recent appointment, he will sit on the bank’s executive committee.
Why investment in housing and employment is rewarding
“Being able to support investment in housing, financial future, and employment opportunities is truly rewarding,” McDermott reflected. “I have experience working throughout the entire end-to-end lending cycle. In recent years, I worked with a startup to acquire a bank licence in the UK and establish a lending offering. The best part of working in this industry is definitely the people, and, more specifically, the opportunity to provide solutions to real people.”
He concluded: “Surrounding yourself with great people makes it easier to adapt quickly, and makes the journey even better, so make sure to have fun on the way.”
Since gaining its banking licence in May 2023, and the inception of its SME lending activities, LHV Bank has successfully increased its loan book to £70 million. It aims to issue £200 million in new loans this year.
