The buy to let (BTL) sector has come under fire from various opponents since its popularity began to rise a few years ago.
With supporters of first-time buyers (FTB) the most vocal against the BTL market, primarily over the shortage of housing stock that is already available being taken by BTL mortgages for the purposes of renting to tenants, this sector is never short of criticism or controversy.
Coming under fire
However a new lender entered the BTL market in the past month and immediately came under fire from a broker. The latest entrant is Britannia Building Society, whose offering has a maximum loan amount of £350,000 and a loan-to-value of 85 per cent. Elsewhere, students are allowed as long as there is only one assured shorthold tenancy agreement and DWP, company lets, tenants with diplomatic immunity and multiple occupancies are not permitted.
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The monthly rental income must be at least 125 per cent of the mortgage payment on an interest only basis at the lender’s standard variable rate. Applicants may not be a first-time residential buyer and if the loan is between 75 per cent and 85 per cent, Britannia will pay the higher lending charge premium on behalf of the customer. A specialist feature of the offering is that the borrower is allowed to let to family members, which was introduced following a survey which showed that 57 per cent of potential investors would like the ‘family-friendly’ option.
Perhaps the strongest area of its BTL offering is that only three properties can be held by the buyer, or a total portfolio of £1,050,000. This, according to Britannia, sets it aside from the rest of the BTL market, and also ensures that it not only offers a different package from the rest of the market in order to remain competitive away from rates and fees, but also allows smaller lenders to remain in the market.
Emma Taynton-Young, group PR manager at Britannia, stated that there is room in the BTL market for large and smaller lenders, and that Council of Mortgage Lenders figures show that 11 per cent of all mortgages sold in the UK are BTL.
Taynton-Young explained: “We launched our BTL package after listening to customer feedback. We trialled the product in our branches last year to see the response, and as it was very positive we decided to run with it. This package is not for professional buy-to-letters as you can only have a maximum of three portfolios – we are not a specialist in BTL and we are simply giving our customers what they want.”
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Forcing small firms out
This has not stopped the lender coming under fire from one broker though, who initially criticised Britannia for its decision to enter the BTL arena where smaller brokers had held stronger market shares. The broker, who asked to remain anonymous, claimed that Britannia’s market size and share would entitle it to a large part of the sector, and ultimately force smaller lenders – who had specialised in BTL mortgages – out of the market.
Although the broker admitted that Britannia’s introduction would strengthen the sector, and smaller lenders would rise to the challenge of a larger lender being involved in BTL, it was important to gauge the response of the lenders who would be directly affected.
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One ‘smaller’ lender who has specified in BTL for some time is Derbyshire Building Society, which has claimed a strong market share in the sector. Tony Capon, head of intermediary sales at Derbyshire ISU, was surprised at how uncompetitive the rates from Britannia seemed to be. Capon stated that the key factor to success in offering a BTL package is to keep the standard variable rate (SVR) low in order that the rental cover requirement can be easily gained.
He said: “These deals are not attractive. The 125 per cent SVR will not attract many buyers as many will not fit the criteria. Britannia is not going to be making any serious in-roads into BTL with these packages.
“For a deal to be competitive, you have to offer an investment that will produce a very high yield to make the cost of the mortgage payment justifiable. The standard SVR is around 115 per cent, while 125 per cent is simply not going to be attractive. You can also see that Britannia is going in cautiously by only allowing buyers with three portfolios so it is not targeting the professionals and is only aiming to bring the amateur landlords.”
This debate is a question of which side of the fence you sit on, and whether you feel that the nature of major competition is going to strengthen and draw attention to, or squash the smaller and more established businesses which are already prevalent. Although some response has been gained by Britannia’s decision to move into BTL, the great impact of its packages will be the next stage to determine.
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