Steve Perrons Blog

Monday 21st March 2011

An interesting shift has taken place in the attitude of some mainstream lenders towards buy-to-let borrowers. This shift has fundamentally altered who can and cannot become landlords and may change the image of the market, though whether it will be for better or worse is not yet apparent.

The pattern that has been emerging since the end of last year is that lenders have proved more willing to lend to borrowers with no previous history of BTL investment than those who already own BTL portfolios.

The banks’ new favoured landlord customer is someone who has stacks and stacks of cash (no surprises there), wants somewhere to put it for a better return, and so chooses BTL property.

The new rejects in the market are seasoned portfolio investors who have been taking out BTL loans for years to refinance and buy more properties.

There will be a number of hidden consequences to this shift in preference.

On the face of it, the casual observer may think: “Good, I’m glad those annoying BTL boomers who went crazy on credit and inflated house prices can no longer get any money to keep hovering up the country’s housing stock.”

And it is indeed a good thing that banks are curbing the still-expansionist drives of the few investors who do not know when to stop and would buy up everything given half a chance from the banks.

Although don’t be fooled that the banks are doing this for altruistic reasons – it is because these investors were also typically ones who over-leveraged and bought swathes of town centre flats that subsequently tanked in value and left the banks without enough security.

Thankfully, it suits everyone to exclude these people from bidding up the price of property to unaffordable levels, and I do not believe we will see the likes of this type of investor ever again. In this respect, buy-to-let, as people commonly (negatively) think of it, has died.

But the banks, in typical bank fashion, have applied this new aversion to all professional portfolio landlords, not just the greedy ones. So a good investor who has been in buy-to-let for ten or so years, has 50 or so properties and is a full-time professional landlord who has given up other occupations to look after the homes and tenants, will also struggle to obtain finance, either to remortgage his existing properties on to favourable rates or to acquire more. 

The consequence of this is that at a stroke, banks start to take out of the housing market precisely the type of professional, reliable landlord that the market and the millions of private renters need.

Instead, they are replacing them with people who have no experience of looking after a property.

All right, these individuals may be cautious investors with huge cash buffers, and probably nice people, but that doesn’t make them good landlords. And the fact that the new breed of amateur is so focused on returns probably doesn’t bode well for the tenant who needs a boiler or oven fixed.

This shift among lenders – and the one notable exception to this is Paragon, which has styled itself as the lender of choice for professional BTL investors – may inadvertently send a maturing service sector industry back to square one.

While lenders can and will select their risk profiles based on past experience, to simply start lending to people with no history in the market purely because they are, from an actuary’s point of view, a better risk than anyone who has ever been in it before, is a bit short-sighted.

Steve Perrons is a professional buy-to-let investor. His company, Perrons Davis, operates primarily across the north