COMMENT
Time for tech?
David Wylie asks why some buy-to-let lenders are wedded to outdated back-office systems.
The buy-to-let market has never been so potentially problematic for lenders. I started my career in the mortgage industry back in the heady days of the early nineties, so can remember when it was undergoing a dizzying rate of expansion on the back of high-and-ris- ing demand for rental property. For the landlord, making a decent return on their investment was relatively straightforward. Light touch regulation was the order of the day and there was a plentiful supply of suitable proper- ty and good tenants. Even if net rental returns fell, large gains from capital appreciation more than made up for the shortfall. From the lender’s perspective, caveat emptor - or “buyer beware” - was the regulatory stance, and if a loan fell into arrears there was always an appreciat- ing asset to act as security. Given such a benign backdrop, the screening of borrowers was pretty rudi- mentary in comparison to what it is today. Unsurprisingly, the product that came to symbolise the period was the ‘self-certification’ mortgage, where the lender largely relied on the say-so of the borrower. Contrast this with the picture today. For landlords, it is nowhere near as easy to make such a good return. Much heavier regulation means adherence to a range of health and safety and tenancy tenure requirements that have dramatically increased costs. Add to this the fact that there is a smaller pool of suitable property to buy, and many more landlords all looking for a decent tenant, and it is no surprise that returns have become slimmer and risks greater.
As a consequence, for lenders, the mar- ket’s risk profile has undergone consid- erable change. There are nowhere near the same number of quality applica- tions as there used to be, and, following the regulation of consumer buy-to-let lending and the FCA’s Treating Custom- er Fairly initiative, the downside costs of poor lending decisions have become much greater. So, given this much more demanding environment, you would imagine that buy-to-let lenders would have been rushing to utilise digital tools that make lending far less risky for them; tools
that have been available for the last five years or so thanks to enhanced tech- nology and initiatives such as Open Banking; tools that can provide granu- lar insight into prospective borrowers in seconds by interrogating line-by-line their finances. Well, I have to say that in most cases they have not been doing this. By and large there has been no rush. Most have stuck to the sort of analogue systems they were using back in the nineties when market conditions were so very different.
20 | Metrics Monthly
Q3 | 2021
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