Specialist buy-to-let lender Landbay has conducted an independent Bank of England stress test to project the impact of a major economic downturn on its outstanding loan book.
As part of its commitment to help people understand what they are investing in, Landbay commissioned MIAC Analytics to provide independent analysis of its £235m residential buy-to-let mortgage portfolio.
These stress tests, which explore what is effectively the economic ‘worst-case’ scenario, are usually undertaken by large banks and building societies, such as Barclays, HSBC and Nationwide, to fulfil regulatory requirements.
The scenarios are designed by the Bank of England and aim to explore the capital adequacy of the UK’s major banks and building societies.
The ‘stress’ scenario simulates a recession with GDP falling by 5%, unemployment rising to 9.5%, residential property prices falling by 33%, base rate of interest increasing to 4.25%, and CPI Inflation hitting 5%.
The effects of this are measured over a 14-year period until 2032 and consider any need to repossess and sell-on properties due to defaults.
Landbay’s reserve fund would cover a portion of the losses, so even under this stress scenario investors are well protected.
Landbay currently offers up to a 3.54% return. In the stress test circumstances this rate would drop to an average of 3.13% per year.
John Goodall, CEO, Landbay, commented: “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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