Despite the record low Bank of England base rate continuing relentlessly towards the 40 month barrier, Abbey was forced to increase their rates by 0.2%. Citing market conditions and reviewing their competitive position this was more bad news for buy to let landlords and further highlighted the importance of looking beyond the high street when sourcing buy to let products.At the start of 2012, many landlords were looking forward to significantly increased competition in the buy to let lending market with Woolwich (Barclays) and Abbey (Santander) making all the right noises and looking to unseat the virtual monopoly held by The Mortgage Works (Nationwide). Unfortunately these early steps into the market did not go well. Woolwich, faced with an unexpected onslaught of business, took the decision to return to 60% lending in preparation for a second re-entry into the higher loan to value buy to let market. This attempt was, of course, made with higher rates and higher fees than the previous run. The only good news for investors was that they continued to offer their market leading underwriting conditions, supporting some multi unit freehold blocks and first time buyer buy to let.
Abbey has fared much better from a service standpoint being more than ready to accept the influx of buy to let business they received. They have, however, not positioned themselves in the dominant market leading position they hold so comfortably in the residential broker market. Some 20-25% of many brokers’ business is submitted through Abbey on a residential basis and the hope was that a lender clearly able to sustain such levels both from a service and from a product perspective would have made significant waves in the buy to let market. This partial retreat recognises that at present the pricing adopted by The Mortgage Works isn’t as far off where they’d like to be as many hoped. This will delay any further moves downwards by buy to let rates, which had earlier in the year showed significant signs of narrowing the gap to residential rates.
Becoming too powerful in the currently unregulated buy to let market also comes with significant risk for Abbey and Woolwich. In the even that any European legislation or indeed even UK legislation forced many current landlords out of the buy to let market it would leave lenders with a stagnant back book not seen since the self certification market effectively closed to all but buy to let lending. This extra risk and uncertainty could leave landlords facing this ‘rate premium’ for some time to come until the effect of increased competition combines with some certainty over the regulatory future of the market.
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