Buy to Let, high LTV lending anyone?
Aldermore has set the cat among the sole 80% lending pigeon by increasing its max LTV, so let’s look at the rates to see what changes this could mean.
The only other lender at this level is the Mortgage Works and below are the 2 ranges to compare at 80% LTV. (Both lenders are only offering fixed rates at this point)
| TMW | ALDERMORE | |||||
| Rate | Term | Fee | Rate | Term | Fee | |
| 6.19% | 2 years | 2.50% | 5.88% | 2 years | £1,999 | |
| 6.39% | 3 years | 2.50% | 5.88% | 3 years | 2.50% | |
| 6.28% | 3 years | £999 | ||||
| 6.49% | 5 years | 3.50% | 6.48% | 5 years | £1,999 | |
Ok, so better rates from Aldermore but what of the fees?
Well for the 3 year fix £999 fee to be less than 2.5% then the loan needs to be more than £39960 and if it was more than £40k then they have the same fee with a lower rate.
For the £1999 on the 2 year it needs to be more than £79960 and for the 5 year rate the loan needs to be larger than £57114.
So, on all but the smaller loans it makes sense to look more closely at Aldermore’s offering and for a 3 year Buy to Let fix TMW’s offering is not as competitive . Well done Aldermore, hope it brings you all the business you want it to!
But what will TMW do?
They have 3 options,
* Let the business head to Aldermore – not quite as daft as it sounds, high LTV lending is riskier, depends on the Risk appetite and capital held. Also it means they will still lend based on criteria, such as no minimum income requirement or a maximum age of 90 at the term, both of which Aldermore will not do
* Cut the rates and look to head off the Aldermore challenge at the pass, Aldermore’s funding is likely to cost more than TMW’s as TMW can access the savers from Nationwide’s money, but if you cut at 80% you might have to cut over the range, do they want this, in a word –No.
* Introduce a new Buy to Let products that are more attractive to higher loan amounts.
Conclusion
Not masses of business at this level anyway, Aldermore will take some and it is likely to be more profitable for them, overall it won’t hurt the monolith that is TMW’s lending volume.
But it might encourage others to have a look at the fringes of the Buy to Let market and elsewhere, looking for higher profits and that is where we start to see criteria relaxed, less risk averse lending and an opening up of the market.
This isn’t me declaring all is well, but without first moves like this we can’t get the market moving back up towards £200bn where the market should naturally sit.
