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Market headwinds creating clear, present and pressing market and policy risks
David Catt, chief operating officer at Hometrack says:
“Understandably, buy-to-let has been a focus when it comes to origination for many lenders. With the number of home buyers coming into the market remaining relatively low by historic standards and rock bottom interest rates reducing re-mortgage activity it’s unsurprising that many have sought to capitalise on the margins in this area of the mortgage market. However rightly or wrongly, the Chancellor has signalled his intent to try and control the scale of investor demand. The 3% increase in stamp duty for buy-to-let properties announced in the autumn statement followed hard on the heels of the summer Budget cuts to mortgage interest relief for second home owners.
“Most lenders are still getting to grips with the likely impact of these changes. However, add to that mix the ramifications of changing classifications brought about by the Mortgage Credit Directive (MCD) as well as the inevitable increase to capital requirements and there are clear, present and pressing risks that demand immediate attention. First and foremost lenders need to be 100% clear on the current position of their back books. Only a clear understanding of their existing levels of exposure to market movements and the product profile of their buy-to-let customers will enable them to profitably navigate changes in investor demand and market fluctuations - whether that be in response to changes in rents, rate rises, regulatory concern or understanding the impact of policy changes. The headwinds are apparent and now is the time for the smart lenders to prepare and position themselves appropriately to avoid more serious consequences further down the line. Benchmarking each loan in a buy to let portfolio against local market conditions provides a unique assessment of risk and a basis for informing profitable ongoing origination.”
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