Buy-to-let misuse: ‘It’s tantamount to fraud and lenders should police it more’ – Foundation Home Loans Manchester Supper Club

The first Supper Club of 2019 took us to Manchester where we locked our guests inside the vault of a former bank until they had broken down the mortgage industry brick by brick.The discussion turned to UK Finance’s data showing a drop of around 25 per cent in remortgage and product transfers in 2020 due to the large number of five-year fixed-rate products being taken up.

But there was little concern about this from the brokers gathered; they were focused on making hay while the sun is shining. “I’m not bothered because I’m so busy, it’s absolutely manic. There was no quiet time at Christmas, January was non-stop, it’s good days,” said one. Another added: “We’d say the same. We had an 18% uplift last year which we weren’t expecting because of all the Brexit talk, but it happened and it looks the same for this year.”

Landlords going into areas they shouldn’t

Much of that business is coming from an apparent migration of landlords and investors from the south east up the M6 – hunting yield and cheaper properties. One broker reported that around 30 per cent of their business came from within the M25 while another agreed, suggesting some were getting carried away.

“I think there’s almost panic buying. For most of my clients from the south it used to be a joy to get a remortgage in Canary Wharf; now the same people are buying in Oldham for £60,000,” the attendee said.

“So I think what’s happening in the market is everybody is coming up here, prices are going up, yields aren’t really changing that much, and the stock is reducing. And people are going into areas where they shouldn’t be going into.”

Added another broker: “People are just piling in, which is an unintended consequence of the stress test changes and everything else. “Instead of someone saying ‘In London I can’t get 75% LTV on one property worth £1m, they’re buying three in Manchester for less than £1m and getting 75% LTV. “In my experience there are a lot of people popping up and almost using Brexit and the uncertainty to find themselves deals, to find themselves business, and to get things at the right price.”

‘Tantamount to fraud’

One of the trends as part of this new world order is for landlords to buy semi-detached terraced properties and break them into two or three units. However, it has also brought about a rather ugly trend, with some landlords buying using buy-to-let mortgages and then converting the property, rather than buying with cash or a bridging loan.

“It’s tantamount to fraud and yes, I think it’s down to the lenders to police it more and I think they are starting to do that because they’re seeing mortgages being reviewed up to six months in, which they shouldn’t really be doing,” one attendee noted. It was noted that this action is partly being provoked by a lack of products to meet the demand, but the main culprits were highlighted as those brokers who willingly complete these deals.

“I lost two clients in January by refusing to do it and I know they’ve gone to the broker down the road and they’ve put them through,” said one broker. But another put the onus on lenders: “They’re fully aware of it, they understand the issues; occasionally a broker will get removed from their panel, which is good, but [lenders] should be more consistent.”

The specialist badge

And all this is part of the growing complexity and speciality of the mortgage market. As one broker noted: “Specialist is becoming the new norm, if you’re doing things right.” This is true of the residential and buy-to-let markets, where complex incomes, complex applicants, unusual properties and different ownership structures can all combine, sometimes in the same case.

But this can also be daunting – for client and broker alike. For those advisers who have barely dipped a toe in this market previously it is becoming essential, if only for compliance reasons, that they are at least familiar with it. “I think there’s a lot of less experienced brokers that just walk away from it, for example limited company structures and things like that,” said one attendee.

“A customer comes to them with one or two buy-to-lets, then yes they’ll look at it. But if they start going to portfolio or limited company, they say ‘I’m not doing it’.” And this can have potentially serious consequences for the client who can end up getting the wrong advice, the wrong product and end up with a hefty and unexpected tax bill. One attendee noted that the whole specialist label could become intimidating for new brokers.

“I think they get a little bit scared and they don’t know what to do and they veer away from I always tell them to speak to business development managers or speak to someone to get a lot more comfortable and then when they do the first case they realise it is like a normal one,” the broker said.

Or as another broker surmised: “The specialist industry needs to stop badging itself ‘the specialist industry’.”

This story was first published in Mortgage Solutions.

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