Buy-to-let lending in Britain is now near its pre-crisis peak. Who is originating these mortgages?
Growth in mortgage lending may be a shadow of its pre-crisis self, but growth in buy-to-let lending is now almost as high as before the financial crisis hit (see chart one).
According to data from the Bank of England, housing market activity climbed about 2% in 2015, with growth driven nearly exclusively by buy-to-let mortgages – advances on new loans amounted to £43bn this year, opposed to the £46bn peak in 2007.
So far, these loans are being repaid more diligently than the ones made out to owner occupiers. However, in its December report, the Bank of England warned that as smaller lenders try to make themselves more competitive by loosening their underwriting standards and demand for loans grows, so does the potential for slip-ups in risk management.
Of the largest mortgage providers in the UK, Lloyds is the indisputable leader in buy-to-let financing (see chart two). The bank has £53.32bn of these loans on its books, amounting to 17.6% of its mortgage portfolio. The loan to value (LTV) for new residential lending is actually lower in the case of rental properties – 62.7% versus 65.3% for houses occupied by owners.
Nationwide Building Society ranks second, with a buy-to-let portfolio less than half the size of Lloyds’. The bank holds £24.37bn in buy-to-let loans, amounting to 15.94% of the mortgage book. The third largest originator of buy-to-let loans is the Royal Bank of Scotland (RBS) with £13.69bn of these loans on its books. RBS recently managed to improve the quality of its mortgage portfolio by lowering the average LTV to 59.6% from 66%, which is closer to the 57% of the owner-occupied homes.
Barclays, another banking giant, is responsible for £10.13bn of buy-to-let loans. As with RBS, it managed to improve the borrower quality over the past year by reducing LTV ratios to 57.6% from 62.9%. These loans are also showing the same health as the rest of the portfolio – only 0.1% were non-performing, the same share as the rest.
Coventry Building Society is another large holder of buy-to-lets, with £9.66bn of such mortgages on its books, making up 35.8% of the entire mortgage book.
Santander, which is the fourth largest mortgage provider in the UK, for the most part steers clear of buy-to-let loans. The bank holds £3.14bn of buy-to-let loans, which amounts to a drop in its £150.06bn mortgage portfolio.
Unfortunately, HSBC and Standard Chartered, both of which are prominent on the mortgage scene, do no publish a detailed breakdown of their mortgage books in reports.
