Aldermore Bank’s evolving buy-to-let (BTL) strategy has been outlined by Commercial Mortgages Managing Director Rob Lankey at its annual conference.

Rob explained how the challenger bank launched as a result of the downturn in the market, which had significantly restricted the availability of mortgages, whether that be commercial or residential: “The high street market rigidly ruled by credit scores forced people down the rented route, so we wanted to come to the market to help those turned away by a restrictive credit score; opening up a proposition on buy-to-let to try to give you the opportunity to place business with Aldermore.”

The lack of new homes has significantly reduced which has given greater demand for BTL. Aldermore supports different clients, “whether that’s first-time landlords or someone who makes a living out of it”.

He described how the BTL market is booming because of the lack of mortgages and the lack of deposits for first-time buyers: “Bank of mum and dad is probably the biggest lender of the market place and the lack of deposit forces people into buy-to-let. BTLs also big because of immigration and indeed for people needing to keep occupation options open, so they choose to rent to keep their options open on the best location for their career.

“Last quarter, we’re back to £5 billion worth of advances for buy-to-let, gross that up to a year we’re almost back to £20 billion a year. If we’re not there then we will be next year so the BTL sector is certainly booming. Average rents in December, year-on-year, are growing.”

However, Rob did warn: “I think we’ve got to keep an eye on this; when do rents reach their plateau? When do rates reach the unaffordable limit? It’s probably the only restrictive part in the BTL piece at the moment, which is mirrored by yield and rent. We need to make sure, and keep it at the front of our minds, as lenders and intermediaries when that rental plateau actually occurs.”

On the investor front, “Rents are certainly rising and the stabilising of house prices are making yields more attractive to investors - average yield of 6.2 per cent is a really good investment. If you compare that to the derisory of investment rates across the country, you can see why BTL is a really big part of an investor’s portfolio.”

Private rented housing accounts for 16.5 per cent of all households, nearly 3.6 million homes in the UK, and most of these will be looking potentially to increase portfolio further, those with big ones already or those wanting to enter BLT market and “brokers are their route in”.

Rob’s advice to the principal introducers on the commercial buy-to-let front, as well as property development, was: “Make yourselves experts in your field. When your customers come to you they come to for a reason – for a solution. So try and make sure in your own patches you know exactly where the deals are to be had. Make yourself an expert. Know where the better yields are, know where the bargains are to be had and that makes you the go-to placed lender and broker for buy-to-let.”

A frustration pointed out on behalf of the Aldermore Resi team is that NACFB brokers who are not FCA authorised and regulated can’t transact business with Aldermore. Rob said: “I think it’s time to kick the tyres on that and take it back to the office to see if there’s anything we can do and come up with a proposition that might meet you half way.”

David Whittaker, Managing Director of Mortgages for Business, presented to Aldermore brokers on the day and agreed with much of Rob’s analysis on the BTL market. He emphasised the challenges that face the broker and talked about whether working in partnership with a lender was a necessity or opportunity.

David described how “many lenders within the complex buy-to-let space had seemingly been asleep for the past 12-14 months”, but went on to highlight that when it comes to distribution, the two innovators are large national brokerages and specialist brokers.

He said: “Specialist brokers help to create new ideas and new products. It’s not just about price, it’s about creating added value that works for your customers. Brokers drive the new ideas and Aldermore value brokers’ input and will go back to the office to plan to implement and make new products for the future.

“The market is re-emerging, but we need to understand where it’s going. In 2012/13, the buy-to-let market is strong. I do have to worry a little bit about Help-to-Buy as it’s a bit like quantative easing: You’ve got the patient on the drug, but how do you get the patient off the drug without a big adverse reaction?

“BTL is solid though and we’re looking at £20 billion this year and £25 billion next year, however we are not yet back in a stable mortgage market. We have also seen a seismic change in the housing attitude in this country. We didn’t used to be a country where people rented long term, but it’s now acceptable, and the quality of the housing stock is such that people will stay renting for a long time. It may suit their employment and their personal lifestyles.

“Aldermore is indicating a strong appetite for residential investment as a broad asset class and their willingness to support you and your clients in it is a good partnership.

“Do remember that when the market recovers and the new brand of managers come in from a host of high street lenders, that they dropped brokers like a tonne of bricks. Aldermore Bank hasn’t and they’re on a journey with you, and that is what true partnership is all about.”

Attending the conference, Adam Tyler, CEO of the NACFB, made an observation that in 2007 NACFB members wrote £9 billion of BTL business, 20 per cent of the overall amount, but that it was less than £1 billion, around 10 per cent, in 2010. However, this year the latest figures that have come out show that it is at 13 per cent now, emphasising the resurgence in the market and the NACFB and members’ share increasing in it.

Aldermore is boosting numbers on the BDM front, is enhancing its systems and broker portal, and will look to join the Government’s Help-to-Buy scheme early in the New Year. Plans are most certainly on the way for the challenger bank looking to strengthen its resources, products and partnerships; the buy-to-let market in particular.