Tiner said: "Given the benefits of the diversification to lenders and investors of the buy-to-let market it would be inappropriate to caution against such a new business development. It is important, however, that lenders take account of potential affordability problems for the investor borrowing to fund this type of investment, especially in areas of particular risk such as London and the South East, where there is a concentration of the buy-to-let market."
"House prices in London and the South East are highest relative to income, and loans have been at the highest income multiples in these areas. This exposes investors to growing risk of market under-performance in these regions."
"We would not wish to see, for example, a relaxation of loan to value or rental cover without lenders first making a clear analysis of the risks. In the event of a down turn in the market, all lenders should be monitoring this part of their portfolio carefully."
Tiner highlighted a number of key points that lenders should take to manage their exposure to the mortgage market. He emphasised the importance of using business plans to take account of the impact of a number of possible future scenarios, such as increasing levels of default.
Other key points made by Tiner included making sure that affordability models review the overall income and expenditure of the borrower, and taking into account the effect of fluctuating interest rates. Also, ensuring that firms pay close attention to cases where there is both a high loan-to-value ratio and a high income multiple.
"Investors are increasingly turning to the buy-to-let market as a source of long-term income and savings, which is an attractive complement to some traditional saving and equity products, especially during a time of low nominal interest rates. Borrowing to fund this investment offers good opportunities to spread investment risk. Investors should be clear-sighted, however, about the long-term nature of this investment and the possible difficulties they may face in cashing in their property investment in the event of a weak market."
