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The return of Buy to Let as a commercial transaction

By Michael Aglony

When the Buy to Let mortgage market started in the early 90’s, Loan to Values were at a maximum of 75%, underwriters made decisions to lend based on the overall viability of the transaction and commercial rates were charged.

For the foreseeable future, Buy to Let mortgages will be available on similar commercial terms and the professional landlord, who is in it for the long term, should consider the rates and terms currently available and make a commercial decision on whether the whole investment, including the cost of borrowing, makes sense. There are still deals to be done out there but the days of a 10% / 15% deposit and rates similar or even better than residential mortgage rates are behind us for now. At the height of what, with hindsight, was a crazy time in the mortgage market, Buy to Let lenders priced for market share and dropped their guards on underwriting.

Regrettably this led to some unscrupulous individuals in the industry abusing the system – we have all read stories of rogue brokers, valuers, solicitors, accountants, borrowers…..I could go on. Some lenders are now facing huge arrears on fraudulent cases. As well as fraud, the downturn in the economy has led to borrowers facing financial hardship adding to the lenders’ arrears.

The Council of Mortgage Lenders (CML) arrears figures for Q3 will show an increase in the number of mortgage arrears and for the first time, arrears on Buy to Let will be higher than those in the domestic mortgage market. The lenders’ focus therefore has gone from generating new business to managing arrears and fraud and it is no surprise therefore that lender appetite for new Buy to Let mortgages has diminished and that terms will now be offered on a more commercial basis. Back to where we started in the early 90s.

Perhaps when banks start lending to each other with confidence and the wholesale money markets open, we may see a slow return to more attractive pricing. This may take a year or two and in the meantime, landlords should be prepared to consider more commercial borrowing terms for what, in essence, is a commercial transaction. For now, rates are available at 75% Loan to value and more attractive pricing is available if you have larger deposits / equity.

Landlords should also consider using a specialist broker to ensure that they are getting the best advice and access to the best lenders and products. With lenders now looking to control volumes and quality, it is likely that they will consider making products available via select distribution channels only – now is the time to ensure you have the right professionals on hand to guide you through the terms available.

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