Specialist buy-to-let (BTL) lender Landbay conducted an independent stress test against the Bank of England’s (BoE) macroeconomic scenarios, with the results demonstrating the “robustness” of its loan book, according to CEO John Goodall.
The stress test was designed to project the impact of a severe economic downturn on Landbay’s outstanding loan book. Usually, the tests are only undertaken by the UK’s largest banks and building societies, including RBS, Barclays and HSBC to meet regulatory requirements.
However, Landbay chose to be tested as part of its commitment to “help people understand what they are investing in”, commissioning MIAC Analytics (MIAC) to provide the independent analysis of its £235m residential BTL mortgage portfolio.
A ‘stress’ scenario simulates various economic crises including a recession with GDP falling by 5 per cent, unemployment rising by 9.5 per cent, house prices falling by 33 per cent, base rate of interest rising to 4.25 per cent and CPI inflation increasing to 5 per cent. The effects of this are measures over a 14-year period until 2032 and consider any need to repossess and sell-on properties due to defaults.
The results found that Landbay’s reserve fund would cover a portion of the losses, so even under this stress scenario investors are well protected. Today, Landbay offers up to a 3.54 per cent return. In the stress test circumstances this rate would drop to an average of 3.13 per cent per year.
Commenting on the results, Landbay CEO John Goodall said: “We’re very pleased with the results of this stress test as it demonstrates the robustness of our loan book and the strength of our underwriting process.
“We believe that undertaking these stress tests, and sharing the results, is the responsible thing to do. It supports investors as they seek strong, sustainable returns across economic cycles.
“We’ll continue to undertake these tests on an annual basis, with the intention of being fully transparent about the process and results to investors or borrowers, or anyone just trying to find out more about the business.
“We’re proud to do the right thing by investors and hope this will prompt others in the industry to follow suit.”
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