UK Edition
Questor: OneSavings is growing fast, low-risk and ‘shockingly cheap’. If you have cash, buy
Questor Income Portfolio: the buy-to-let lender operates in the fast-growing ‘professional’ part of the market and shies away from risky low-deposit loans
If politicians hoped they had dealt a mortal blow to buy-to-let, their wishes have not been realised.
Governments have introduced a series of measures to discourage landlords, such as the stamp duty surcharge and the removal of the tax deductibility of mortgage interest, but the sector refuses to die.
Data released earlier this week by UK Finance, the banking trade body, showed a month-on-month increase in gross buy-to-let lending of 14pc. If we put monthly variations aside, buy-to-let lending has been remarkably stable at about £40bn a year since the introduction of the stamp duty surcharge in April 2016, widely seen as the most significant new obstacle for property investors.
Until that date the data had showed brisk growth, so we can say the surcharge took the heat out of the market but did not come close to killing it.
Within the broader buy-to-let market there are some more specialised sectors, however, and OneSavings Bank, a holding in the Questor Income Portfolio, is one of a number of lenders to focus on “professional” landlords who run their property portfolio as a business rather than the “accidental” landlords who may have inherited a property or found themselves with a surplus flat when they moved in with their partner.
By contrast with the stable level of lending seen across buy-to-let as a whole since the stamp duty surcharge came in, OneSavings’ own loan book, which is largely but not exclusively buy-to-let, has been growing at a fair clip.
In the third quarter of 2016, after the effects of the introduction of the surcharge had died down, it lent about £500m on a “gross” basis, before redeemed loans were taken into account. In the second quarter of this year it lent more than £800m on the same basis, a record for the company. The “net” figures were about £190m and £440m respectively.
Last month the bank raised its guidance for full-year loan growth to the “high teens” per cent and Ian Gordon, a banking analyst at Investec, said this week’s data from UK Finance “offers validation” of that expectation.
Not only is OneSavings growing strongly but it is doing so without taking undue risk, Mr Gordon said. He pointed out that the bulk of the bank’s growth had been achieved in loans to borrowers with a deposit or equity of 20pc-30pc. The average deposit for new loans is 30pc, while across the mortgage book as a whole the figure averages 32pc.
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“However, in our view the most important element of the data is that, at June 30, a mere £45.8m (0.6pc) of OneSavings’ £7.1bn buy-to-let book had an LTV [loan-to-value ratio] in excess of 90pc [ie deposit or equity of less than 10pc],” the analyst added.
“We believe that this serves to confirm OneSavings’ status as an ultra-low-risk lender that should be capable of withstanding a recession and/or material house price correction significantly better than most, or possibly all, UK bank peers.”
He said he expected OneSavings to receive final regulatory clearance to proceed with its agreed all-share acquisition of Charter Court, a similar lender, in the coming days. Charter Court also reported a strong loan pipeline alongside its latest results.
“The specialist lender sub-sector is on fire and, in our view, shockingly cheap,” Mr Gordon said. “Despite a 20pc rebound in the share price over the past three weeks, OneSavings Bank trades on just 5.3 estimated earnings for 2020.”
In view of its specialist position in a robust sector and its sensible attitude to risk, the shares remain a hold for the portfolio and a buy for any readers with spare cash to deploy.
Questor says: hold
Ticker: OSB
Share price at close: 364.6p
Update: Regional Reit
The real estate investment trust published its interim results last week. Among other reassuring facts it said it had made a total shareholder return of 40.8pc since its flotation in 2015, representing 9.8pc annualised gains.
Questor says: hold
Ticker: RGL
Share price at close: 102.8p
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