Mortgages and Estate Agents Plus Lloyds Banking Group’s Strange New Buy to Let Lending Policy
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Lloyds Banking Group has just announced it will no longer be offering new buy to let mortgage loans to landlords who have more than three properties or who have more than £2m worth of loans. This move will also hit buy-to-let investors that are remortgaging their current properties.
Apparently, nine out of 10 of buy-to-let borrowers with Lloyds (which includes BM Solutions) have less than three properties with the group. A spokesman told me, “We’ve never been a provider for borrowers with massive portfolios,” she said.
Well, with policies like this, Lloyds clearly has no desire to help their successful landlords grow bigger either.
So that now leaves just one big player in the buy-to-let market – The Mortgage Works, which is part of Nationwide Building Society. OK, I know there are a few other small players but most of the others are all pretty well hamstrung when it comes to new lending by the freeze in the money markets. And as The Mortgage Works probably won’t want all the new business, landlords can only expect buy to let mortgage rates (which are already high relative to standard residential rates) to go up even more.
(As an aside, we have said before at this blog that the high rates on buy to let loans compared to standard residential can be explained better by lack of competition than by worse arrears rates.)
Just the other week I wrote on this blog about some landlord friends of ours who have a few million in equity in their properties, 10 years experience as landlords, an overall loan to value ratio overall of about 50% and an annual profit of around £65K from their property business. They were turned down for a loan on a new property because it seems that Woolwich (part of Barclays) no longer likes to lend to full time landlords.
And now Lloyds Banking Group would clearly now be out of the picture too for these people.
Baffling
I find this all pretty baffling. I simply cannot understand why the UK banks would rather lend to the more novice and inexperienced landlord than to professional landlords with a long proven track record of success, strong incomes and high equity. I haven’t seen the stats, but I do know from people I meet that the more experienced bigger landlords are always better risks and would exhibit lower arrears rates.
I fully accept that there is some danger to lenders if a big landlord has a high loan to value across his portfolio. But the banks can easily weed out applicants like these.
What’s probably happened is that someone high up at these banks has issued an edict saying they don’t want to be exposed to any individual for more than a certain amount of money – and that has been passed on and down the line. They also probably just lump buy to let in with other more risky lending like sub prime and self cert mortgages.
But in doing this they did not stop to think that the fact they can control the amount of exposure they have to any one individual’s specific property actually makes their risk fully controllable with respect to the specific asset on which the loan sits.
Bank of China and the Post Office are two new lenders who aren’t stuck for funds to lend though both have a low profile in buy to let despite some decent rates (though LTV is limited with BOC).
This move by Lloyds will surely have these competitors excited. I hope so because otherwise the options are limited for borrowers.
Rogue Estate Agents and Mortgage Mischief
Estate agents love to try to force you to use their “independent” mortgage adviser. Indeed, all too often they refuse to put an offer forward until you have had your finances “reviewed” by their mortgage adviser, or in some cases they may even say that if there are two offers on a property they will only push the offer that has arranged via a mortgage thats been taken out through them.
Let’s be clear. Any estate agent that is a member of a professional body like the National Association of Estate Agents is duty bound to put all offers forward to the vendor, and must confirm the offer in writing to both buyer and seller. And it does not matter whether you have spoken to their mortgage adviser or not.
Of course, being vetted by the agent’s mortgage adviser can have advantages for you. For a start the agent can confirm to the vendor that you have spoken to their adviser, and that you are a credible buyer, regardless of whether you arranged your mortgage through them. This puts your offer in a very positive light, which is of obvious benefit to you.
But if you have your mortgage agreed in principle elsewhere, you should tell the agent and be prepared to show them proof of this, together with any deposit.
But never feel forced into arranging your mortgage through the agent just to secure the property. Most agents are straight but there are some who will not play fair. These rogues tot up the lost commission from the mortgage and that from the sale, compare it to the other applicant who did take out a mortgage with them and “forget” to put forward your offer. If you think that has happened to you then you must formally complain to the estate agent’s governing body.
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I think the Lloyds decision re Bm is ridiculous, it is clearly because they are in a much worse state than they have let on. As a government owned institution it beggars belief that they are doing this. i spoke to my business development manager about this and he said ‘well you’ve got until the end of the week to get applications in!’ that was about it, he also said that it is likely this will be removed in the future once they realise they are drammatically losing business but I also think he is looking over his shoulder as they are bound to be making more redundancies. There is clearly no logic to their figures either, 3 properties with max lending of £2million , how many property investors have 3 properties with nearly £700k of lending on each!!?? I reckon it’s a very small percentage of all property investors.
Applicant Mortgage Reviews and Estate Agents Plus Lloyds Banking Group’s Strange New Buy to Let Lending Policy
There is an additional factor that spring to mind which may hint at the banks’ – or certain banks’ – thinking: coalition policy.
The Taxpayer owns 40% of Lloyds-TSB.
The Government which is tasked with a debt burden – heaped on it by a previous government – knows this.
Unfortunately the government’s, well, a bit of a mongrel. Bulldog from the neck up, poodle from the neck down, the Bulldog part does not want to upset its wealthy landlord masters by being seen to remove a bowl full of treats meant for a tiny elite and the Poodle half, not really that timid actually for anyone who has encountered one – think Vince Cable – wants everyone in the kennel to have a go at the doggie treats.
If Lloyds, owned in part by the voting taxpayer, does not spread the lending to the less well off, then the government may be forced to do something which it does not want to do publicly… that is, besides reducing debt, rob the property rich to give to the buy-to-let poor.
Forget Vince… what about poor David. (That’s Cameron, not Lawrenson.)
Hi JP and Chris
I forecast that Vince will only be able to stand it for another 6 months at max. I was going to write to him to agree with his thoughts and explain how BTL landlords were feeling the effects of the lack of competition in financing and dumb lending but I figure he’s probably not too pro landlord.
One bit of good news though, not reported much elsewhere, the govt has told the big city cos not to expect any tax breaks to help them invest in “build to let” That’s very good news for the small landlord.
Have to agree with James and yourself David, really is a baffling decision and disappointing that there is so little choice for professional property investors. I look at people like Tescos who are trying to get more into the banking sector and hopefully they will shake up the market. The two biggest problems in the banking sector is poor liquidity due to bad debts, and a lack of competition. I think we need to encourage more providers and prevent massive banking companies buying all round them reducing competition. This would hopefully rectify issues like the above.