A range of residential and commercial buy to let products is now on offer from Aldermore Bank, who aims to corner the private rental market and become the ‘go-to provider’ for buy to let landlords.
In response to the continued strength of the rental market, Aldermore aims to be a ‘challenger’ bank to the mainstream lenders who are curtailing their lending, and to cater for “the whole of the private rental sector market”.
The news will doubtless please buy to let borrowers in the face of possible restrictions on lending. Despite interest-only mortgages being the most popular choice in the buy to let market, the Financial Services Authority (FSA) wants to limit the lending of such products in the future.
It warns that £120 billion of loan repayments are due in the next decade, and that there is a real concern that many of the 1.5 million borrowers will be unable to repay their debts. Such restrictions might be wise with regards to the residential property market – which has seen the proportion of loans which are interest-only fall from 80% in the late 1980s to an anticipated 10% this year – but the Council of Mortgage Lenders (CML) advises that interest-only can be a useful option for many categories of investor.
The CML’s 17 October ‘News and Views’ e-newsletter states:
“Fixed-rate interest-only mortgages minimise costs for landlords and are more likely to produce a profitable margin … (they) also enable landlords to meet lenders’ requirements that their rental income produces an average minimum cover of 125% of their borrowing costs.”
It said that whilst it “broadly agrees” with the FSA, there was an argument for individual consumers making an informed choice based on their circumstances and credible plans to either repay the mortgage or to explore options which are “not based on owning” the investment property after the termination of the loan.
Buy to let remains the largest sector for interest-only lending, though such products are disappearing rapidly from the residential mortgage market (Nationwide have joined the Co-operative Bank in only lending interest-only products to existing borrowers). This news comes at the same time as data from the national advisory firm Mortgages for Business showing that average rental yields on residential buy to let have risen to 6.7% – an increase of 0.6% – over the last quarter.