Bob Young: Spare me the bleedin’ obvious

Bob Young, managing director of Capital Home Loans, could do without recent preaching over buy-to-let lending.
While I’m sure the recent Exact White Paper on the buy-to-let market was intended to provide an insight into the potential future of the market, it seems obvious – from a buy-to-let lender’s perspective – that there has been something of a reimagining of the past from those who produced the document.

Let us not forget that the management team at Exact are fundamentally the same people who presided over the former specialist (and buy-to-let) lender, Edeus. Perhaps, were it not for this fact, buy-to-let lenders might be willing to view the White Paper with something more than severe scepticism. It seems rather rich that this team now feels it is in a position to give advice about how the industry should assess buy-to-let applications.

The press release which accompanies the launch of the White Paper suggests lenders ‘should increasingly assess buy-to-let applications on the quality of the underlying collateral in the future’. There are a number of points to be made on this &ndash firstly, one wonders at those lenders whose underwriting and criteria policy didn’t have the quality of the security, i.e., the buy-to-let property itself, at the heart of its lending decisions. Perhaps this explains the huge rise in buy-to-let arrears and loss-making portfolios.

Secondly, making this sort of point to experienced buy-to-lenders seems to be the equivalent of teaching your grandmother to suck eggs. Unlike certain self-titled specialist lenders (who are no longer in existence) and some high-street brands, we have always been aware that one of the pillars of any secured lending is the relative quality of the security. This was a fact ignored by many lenders who have gone to the great lending graveyard in the sky it was not ignored by those who actually understand lending, and in particular buy-to-let lending. You will find that successful buy-to-lenders still in existence were never so blas&eacute as to ignore ‘the standard of collateral’ as Exact put it.

A starting point that every business lending in the buy-to-let sector has come to belatedly understand is that a good credit score on the individual is only part of the story. Of equal importance are the security and its provable, sustainable rental figure.

Quality buy-to-let lenders don’t just credit score the individual, they credit score the whole deal including the rental income and the property itself. CHL for instance did not agree with many of the rental valuations believing them to be unsustainable. If all buy-to-let lenders had done this during the ‘boom years’ we would certainly have less arrears and repossessions than we are now currently seeing. Only by credit scoring in the round can the lender get a clear 360-degree picture of the buy-to-let deal.

We should perhaps welcome the fact that the team at Exact (and Edeus) have now come to see this is the right way to go about lending in the buy-to-let sector. However to begin preaching about credit quality, given what has gone on before, is perhaps one of the best examples of stating the bleedin’ obvious (20/20 vision in hindsight) you are likely to witness this year.