Alan Harper, senior analyst at Moneyfacts.co.uk, looked at the growth of high loan-to-value products in the sector.
“Six months ago, buy-to-let products to 90 per cent loan-to-value were very few and far between. This year, in February alone, Alliance and Leicester, Bank of Ireland Mortgages, Freedom Lending and Platform have all launched products to 90 per cent, whilst Kensington Mortgages has entered the ‘prime’ buy-to-let market with products up to 90 per cent LTV. It brings to eleven the number of buy-to-let providers with 90 per cent products now listed by eMoneyfacts.co.uk.
“Data from the Council of Mortgage Lenders (CML) reflects a longer term trend of increasing loan-to-value limits. In 1999, the average maximum LTV offered by providers in the sector was 75 per cent according to the CML. Two years later this figure had risen to 80 per cent and to 85 per cent by 2006.
“Additional research by eMoneyfacts.co.uk reveals a similar pattern. We’ve found that, five years ago, the average loan-to-value of all fixed rate buy-to-let products was between 74 per cent and 78 per cent. The equivalent figure today is around 81 per cent, varying slightly depending on whether the applicant is a first or second-time borrower or is remortgaging an existing property. This increase in loan-to-value limits is down not only to the growing number of lenders offering 90 per cent products, but also to a more generous stance in lending limits allowed throughout the sector.
“Not surprisingly, lenders are pricing products with higher LTVs at increased margins to reflect the greater risk. Alliance and Leicester, Freedom Lending and Platform have all priced the initial pay rate of their ‘prime’ 90 per cent products at up to 0.81 per cent, 0.45 per cent and 0.40 per cent respectively, higher than the equivalent products available only to a maximum of 75 per cent.
“The CML has also reported that the level of arrears in the buy-to-let sector, 0.59 per cent at the end of 2006, continues to fall and is lower than in the mortgage market as a whole. This may suggest that, notwithstanding the increasing proliferation of high LTV products and the risks to lender and borrower alike associated with high loan-to-value borrowing, the basic tenet of responsible lending is not being compromised.
“Prospective landlords need not necessarily be enticed by the lure of high loan-to-value products when the range of options available in the market is so broad, and should always seek appropriate guidance from a professionally qualified adviser before entering into this type of transaction.”
