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Specialist UK Mortgages...
Buy-to-let: March of the high loan-to-values
A growing number of buy-to-let lenders are springing into action this year with the launch of products available to a maximum 90% loan to value. Alan Harper, Senior Analyst at eMoneyfacts.co.uk looks at the growth of high loan-to-value products in the sector.
“Six months ago, buy-to-let products to 90% loan-to-value were very few and far between. This year, in February alone, Alliance and Leicester, Bank of Ireland Mortgages, Freedom Lending and Platform have all launched new products to 90%, whilst Kensington Mortgages has entered the ‘prime’ buy-to-let market with products up to 90% LTV. It brings to eleven the number of buy-to-let providers with 90% products now listed by eMoneyfacts.co.uk – Table 1 (below).
“Data from the Council of Mortgage Lenders reflects a longer term trend of increasing loan-to-value limits. In 1999, the average maximum LTV offered by providers in the sector was 75% according to the CML. Two years later this figure had risen to 80% and to 85% by 2006.
“Additional research by eMoneyfacts.co.uk reveals a similar pattern. We’ve found that, five years ago, the average loan-to-value of all fixed rate buy-to-let products was between 74% and 78%. The equivalent figure today is around 81%, varying slightly depending on whether the applicant is a first or second time borrower or is remortgaging an existing property – see Table 2. This increase in loan to value limits is down not only to the growing number of lenders offering 90% products, but also to a more generous stance in lending limits allowed throughout the sector.
“Not surprisingly, lenders are pricing products with higher LTVs at increased margins to reflect the greater risk. Alliance and Leicester, Freedom Lending and Platform have all priced the initial pay rate of their ‘prime’ 90% products at up to 0.81%, 0.45% and 0.40% respectively, higher than the equivalent products available only to a maximum of 75%.
“The CML has also reported that the level of arrears in the buy-to-let sector, 0.59% at the end of 2006*, continues to fall and is lower than in the mortgage market as a whole. This may suggest that, notwithstanding the increasing proliferation of high LTV products and the risks to lender and borrower alike associated with high loan-to-value borrowing, the basic tenet of responsible lending is not being compromised.
“Prospective landlords need not necessarily be enticed by the lure of high loan-to-value products when the range of options available in the market is so broad, and should always seek appropriate guidance from a professionally qualified adviser before entering into this type of transaction.”
*Percentage of buy-to-let mortgages three months or more in arrears at the end of 2006. Source: Council of Mortgage Lenders.
Table 1 - Buy-to-let mortgage lenders to offer maximum 90% LTV products
Lender |
Date when first launched 90% LTV Buy-to-let products |
Alliance & Leicester |
Feb-07 |
Bank of Ireland Mortgages |
Feb-07 |
CHL Mortgages |
Jul-06 |
edeus |
Oct-06 |
First Trust Bank (NI) |
Apr-06 |
Freedom Lending |
Feb-07 |
Kensington Mortgages |
Feb 07 * |
Platform |
Feb-07 |
Salt |
Nov-06 |
Scarborough Specialist Mortgages |
Jan-07 |
The Mortgage Works |
Jun-06 |
*= Date refers to launch of 'Prime' 90% LTV products. 'Sub Prime' products to max 90% LTV launched March 2006. |
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www.emoneyfacts.co.uk |
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Table 2 - Average buy-to-let fixed rate loan-to-value limits
Average buy-to-let fixed rate loan-to-value limits, March 2007
Borrower type |
First time buyer |
Second time buyer |
Remortgage |
Average LTV |
81.3% |
81.1% |
80.9% |
Average buy-to-let fixed rate loan-to-value limits, March 2002
Borrower type |
First time buyer |
Second time buyer |
Remortgage |
Average LTV |
74.5% |
77.7% |
77.6% |
Source: www.emoneyfacts.co.uk
NOTES TO EDITORS:
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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