The pages of the financial media have been awash with reports about the potential impact of higher stamp duty on the buy-to-let market ever since the government announced an additional 3 per cent levy a year ago. It is no surprise then that some companies with exposure to buy-to-let have seen their share prices fall substantially. Challenger bank Aldermore (ALD) is a case in point - its shares are down by almost a quarter in the past 12 months. Buy-to-let mortgage lending makes up almost two fifths of Aldermore's loan book. However - considering how well-flagged the legislative changes introduced at the start of this month have been - we believe fears that the tax increase will lead to a fall in demand have been excessively priced in.
- Growing net interest margins
- Discount to peers
- Cost-to-income ratio falling
- Growth in residential and SME mortgages
- Exposure to buy-to-let
- No dividend
Last year, while Aldermore's net buy-to-let loans rose 18 per cent to £2.4bn, new buy-to-let loans were actually down 7 per cent to £673m. Fast loan growth in other parts of the business meant overall net loan growth was a more impressive 28 per cent, taking the loan book to £6.1bn. Net commercial mortgage loans grew by 50 per cent to £829m and the residential mortgage loan book increased by 42 per cent to £1.4bn. Meanwhile, asset finance, where the bank lends to businesses to finance critical assets such as machinery and vehicles, grew by 29 per cent to £1.3bn. All this helped to push the group's net interest income up 42 per cent to just under £200m and, even more impressively, drive pre-tax profits up 88 per cent.