According to SimplyBiz Mortgages Head of Strategic Development, Richard Merrett, buy-to-let (BTL) is on its way to becoming a loan-to-value (LTV) only market for acquiring purchases.
Speaking on this week’s Lenders Live, Merrett said: ‘What’s quite interesting is that a lot of lenders are starting to come back into the market and there are big swings in stress rates which are used among lenders who are in the same peer group as well.
Merrett’s comments come after The Mortgage Works has increased its stress rating to 8.49% last week following significant changes in BTL interest rates and the broader economy.
The Mortgage Works said the change is “an interim measure to better protect homeowners’ cash flow during a period of turbulent interest rates.”
Managing Director and Founder of Knowledge Bank, Nicola Firth, said this, coupled with the increase in two- and five-year fixed rates, suggests “no new business above 50% LTV will be placed as the numbers just don’t add up”.
Merrett explained, “I’ve seen high street lenders come out with anything between 6.5% and 8.5% as stress. It’s all over the place and lenders react and react to a number of different variables, pricing volumes and all of that.
He also noted the impact on lenders who are funded by the capital market and suggested “there will be real challenges for them as we have seen during the Covid period, and there are many who were just adapting and recovering and being able to come back to market in this space”.
Meanwhile, Fleet Mortgages chief commercial officer Steve Cox said the move away from the very low interest rate environment to a “more historically normal” environment is a “significant change”.
Cox said confidence is important because “if we can see a bit more stable environment, then we might start to see funding costs start to come down a bit, which will help.”
He explained that the move to a more “historically normal” environment will begin to impact the affordability calculator.
“From a market evolution perspective, it has shifted towards professional owners with larger portfolios, so it may be that they can continue to build if they have built significant equity positions in their wallets over time, but I’m not sure how long this is all going to last.
“It’s getting back to the point of stability and if we see that, a more normal operating environment could start to spread,” Cox added.