The head of BM Solutions has said the mortgage industry needs to learn from past mistakes as it faces an “abundance” of competition.
Phil Rickards said the high amount of competition in the mortgage market would inevitably lead to changing criteria but these had to be the right changes.
Mr Rickards' comments come after in September the Financial Conduct Authority’s mortgage sector manager expressed concern about lenders taking part in a “race to the bottom” as the market becomes saturated.
Mr Rickards said: “I’ve been calling for competition in the buy-to-let sector since the 2008 to 2009 downturn when many lenders exited the sector, leaving a small number to hold the fort – of which BM Solutions played a crucial part.
“Competition is a positive thing and now that it is here in abundance it can certainly benefit the broker in terms of product choice, which then ultimately benefits their customers.
“We must prevent lenders lowering standards from happening and learn from some of the mistakes made in the past. The Prudential Regulation Authority's minimum standards on underwriting go a long way to ensuring this.
“As the buy-to-let market growth looks set to slow in the wake of the various challenges into which the market now faces, we need to make sure that any changes to criteria are carefully considered in terms of risk.
“They must make sense for the lender who must lend responsibly, the broker in terms of quality and the customer in terms of protection.
"Criteria enhancements may be an inevitable product of competition but they must be the right kind.”
In September, the PRA outlined the minimum expectations that firms should meet in underwriting buy-to-let mortgages, specifically: Affordability assessments should take into account: borrower’s costs including tax liabilities, verified personal income (where used by the lender) and possible future interest rate increases.
Lending to portfolio landlords (defined by the PRA as being those with four or more mortgaged buy-to-let properties) should also be assessed using a specialist underwriting process.
The FCA’s Lynda Blackwell said the number of active lenders in the market has increased by 10 per cent but the top six firms take 75 per cent of the lending, which could push smaller firms to diversify.
She said smaller lenders could start competing by targeting under served customers, saying the FCA is already seeing loan-to-values (LTVs) on interest-only mortgages start to “creep up” and a tolerance of poor payment histories.
Daniel Bailey, a mortgage broker with Derbyshire-based Middleton Finance, said: “Each lender has their place in the market.
"You have got your high street lenders but as an alternative you do have the smaller building societies which don’t compete on rates but can offer something different on criteria.”
damian.fantato@ft.com
