The announcement by Magellan Homeloans that they are closed to new business generates some interesting questions about the future of buy to let lending, it also begs the questions of what comes next and whether this is the start of a new trend.
Matt Gilmour, CEO of Magellan Homeloans said;
“The competitive landscape has continued to shift, mortgage loan interest rates are reducing when the cost of funding is rising, and some lenders are taking on more credit risk despite the volatile economic backdrop.
Magellan has prided itself on maintaining excellent credit standards whilst helping customers who have been disenfranchised by high street lenders. However, we do not wish to compete in a market which we view as unsustainable”
This is a very honest statement which covers the facts. There is competition among lenders to reduce the cost of borrowing and the cost of funding is increasing for the majority of lenders.
We have also seen the confirmation that Charter Court and One Savings Bank are moving ahead with a merger, another suggestion that a competitive market with external cost pressures is starting to bite a little harder.
What it means for the borrower
In terms of business with Magellan then they will honour current terms as they are, for pipeline business and pre-approval cases then applicants will receive fee refunds and cases will not proceed.
The bigger issue is what happens to buy to let lending as a whole.
Classic economic thinking is that the loss of one player increases the market size for the remaining. The real devil is in whether other lenders share the thinking of Magellan.
There are two immediate routes that lenders could follow here. We could see interest rates on buy to let increase across the board, or we could see buy to let lenders move away from the more complex cases and leave these to a smaller pool of lenders.
If the second route is followed then we are likely to see a larger differential in costs between vanilla and complex cases, we are also likely to see vanilla cases become somewhat ‘super vanilla’ with the variables lenders will tolerate becoming narrower.
In reality, we will probably see a bit of both.
Excuse the sales pitch, but if you are impacted by Magellan withdrawing then we can help. Sales pitch over.
For buy to let borrowers, it may be time to consider not only the best deal out there but also to give consideration to the lender you are using.
Whilst those with deals going through will likely see them honoured, whether it is Magellan or another lender, you don’t want to be caught in the cycle of loan books being sold. We have seen this with old Northern Rock borrowers where their loans were sold on and ultimately collected out. The level of service to the borrower drops and there is a requirement to remortgage on expiry, the option to renew disappears. This is something I have talked about previously as you don’t want to be remortgaging at a time that suits you the least.
For now, it may be prudent to check the lender as much as they check the borrower.
Any questions, get in touch.
By Dave Farmer