The Intermediary talks to Richard Rowntree, managing director for mortgages at Paragon Bank about the challenges facing the buy-to-let market, the effect of the short-supply of housing on homebuyers and how brokers are bullish on remortgages.
Paragon recently published its half year results which show a 19.5% increase in buy-to-let lending. Can you tell us more about this?
Paragon has had a particularly strong first half of this financial year with the 19.5% increase in buy-to-let lending, 98.2% of which was classified as specialist, demonstrating how portfolio landlords have been acquiring properties in response to increased tenant demand.
It was interesting to see that contributing to this increase in business was growth in green mortgage lending, with completions on properties with EPC C or above up 38.4% on last year.
With a clear need to create a more sustainable private rented sector (PRS), it is encouraging to see that landlords are keen to take advantage of the green mortgage products we introduced to incentivise the purchase of energy efficient buy-to-let properties.
Can you tell us a bit about the current mortgage market?
We’ve recently published our first ever Mortgage intermediary insight report (MIIR) and as part of this we asked intermediaries about the business they’ve experienced so far this year. Their responses indicate the state of the market, with the majority of firms either at or near capacity.
After initially being kick started by the stamp duty holiday, increased levels of property purchases have been sustained by a combination of our renewed interest in our homes brought on by the pandemic and subsequent rise in homeworking, as well as record low interest rates.
One of the most notable features of the current market is constrained supply. While this doesn’t appear to be negatively impacting purchase levels, it inevitably contributes to higher asking prices and competition amongst buyers.
This has the potential to lead to frustration amongst clients so it’s important that we help buyers to understand the implications of what is an extraordinary market where homes are sold regularly above market value and at lightening quick speed.
And how do you see the market shaping up for the second half of the year?
The current pressure on household finances is likely to hinder the ability of some people to save for deposits and limit what they can afford to borrow in order to buy their own home. This means that the demand we’ve seen for privately rented homes is likely to remain.
In addition, we know that remortgage business has been particularly buoyant so far this year and I foresee this continuing as substantial proportions of five-year fixed rate mortgages, which surged in popularity after changes to PRA underwriting rules were introduced in 2017, mature.
This is something supported by intermediaries, who we asked to predict the future strengths of the mortgage market.
The top response was for future business was remortgaging across residential and buy-to-let markets, chosen by 74% and 56% of those surveyed, respectively.
In response, four in 10 are placing a greater focus on client communication towards the end of terms, one in 10 firms have streamlined their compliance processes and one in 20 have dedicated additional resource to manage remortgage business.
How do you see the recently published A fairer private rented sector white paper impacting the PRS?
Lots has been said in the media since the white paper was published, some of it verging on hysteria, particularly around the removal of Section 21 or so-called ‘no-fault’ evictions.
Of course, people are more likely to click on articles predicting the demise of the UK’s second largest housing tenure than those which take a more balanced view, but I think it’s important to focus on what we know rather than sensationalise.
And what we do know is that the Government actually plans to strengthen landlords’ ability to gain possession of their property by reforming Section 8.
This will see an increase in the mandatory rights to possession, with grounds covering the most common scenarios, such as those involving anti-social behaviour, rent arrears or if the landlord wishes to sell or move into the property.
There is lots of evidence to demonstrate that buy-to-let presents a comparatively stable asset class and with millions relying on privately rented homes, investment in the sector should be encouraged.
