Lending to buy to let landlords in the UK is recovering from a dip but the value and number of mortgages in this sector is still significantly lower than a year ago, the latest data shows.
Gross buy to let lending declined in September compared to August and remained down on year earlier levels but, on a quarterly basis, lending went up in the third quarter compared to the second quarter, according to the figures from the Council of Mortgage Lenders.
The CML data also show that nearly two thirds of buy to let loans were remortgages rather than house purchase with the figures raising concerns as the buy to let sector in the UK has been facing and continues to face a number of upheavals.
Landlords borrowed £2.8 billion in September, down 7% month on month and 22% year on year. This came to 18,200 loans in total, down 6% compared to August and 26% compared to September 2015.
Quarter on quarter landlords borrowed £8.8 billion, up 10% compared to the third quarter of 2015 but down 19% year on year. This came to 56,200 loans in total, up 9% compared to the second quarter but down 24% compared to the third quarter in 2015.
CML director general Paul Smee said that six months on from stamp duty changes on second properties and buy to let purchases lending in the sector continues to operate at lower levels than a year ago. ‘But lending for buy to let house purchase and remortgaging has settled at its current level over the last four months,’ he added.
But with landlords facing changes to their tax regime next year unless plans to take away tax relief on mortgage payments are announced by the Chancellor Philip Hammond in his autumn statement next week the buy to let sector could take a further dent, according to Steve Bolton, founder of Platinum Property Partners.
‘Although there was a slight recovery in buy to mortgage lending in the third quarter, both the value and number of purchase loans remains significantly lower compared to this time last year. We may be waiting a long time to see the resurgence in mortgage lending needed to bring the buy to let market back to where it was before stamp duty changes took effect, not least because landlords are also being targeted with tougher affordability criteria,’ he said.
He believes that the fall in purchase loans suggests many landlords are holding back from expanding their portfolios. ‘With punitive tax changes on the horizon for 2017, this trend will only become more pronounced. The unfortunate knock-on effect for tenants is rents will become more expensive as the supply of suitable rental accommodation is constricted,’ he pointed out.
He also pointed out that one area of buy to let with a slightly more positive outlook is remortgage lending. ‘With interest rates so low, landlords can make considerable savings by swapping to a more cost effective deal. The threat of a higher tax bill in 2017 should prompt landlords to look for savings wherever they can,’ he said.
‘Portfolios must be managed professionally to succeed in a climate of anti-landlord policies. One way of maximising the chances of but to let success is by adopting a high income strategy, for example, by investing in Houses in Multiple Occupation (HMOs). With multiple tenants in one property, HMOs provide landlords with up to four times as much rental income than a standard buy to let property, making it easier to absorb rising costs,’ he added.
The CML figures also show that overall in September home owners borrowed £11.4 billion, down 7% month on month but up 4% year on. A breakdown of the figures show that first time buyers borrowed £4.9 billion, down 4% on August but up 14% on September last year, home movers borrowed £6.5 billion, down 9% on a month ago and 3% compared to a year ago and remortgage activity totalled £5.5 billion, down 7% on August but up 8% compared to a year ago.
In the third quarter of 2016 home owners borrowed £34.3 billion, up 16% quarter on quarter and 1% year on year while first time buyers borrowed £14.5 billion, up 8% on the second quarter and 12% on the third quarter last year, home movers borrowed £19.8 billion, up 22% on the last quarter but down 6% compared to a year ago and remortgage activity totalled £17.5 billion, up 5% on the second quarter and 22% on the same quarter a year ago.
‘House purchase activity appears to have steadied, we may not be seeing huge increases in activity on the scale of 2013/2014 but there is a consistency in the levels in recent months,’ Smee pointed out.
‘Mortgage affordability reached an historic low in September, for both first time buyers and home movers, which partly reflects the re-pricing of mortgages following August’s base rate cut. This should help turn strong appetite for home ownership into a reality as we approach the closing months of the year,’ he added.
According to David Brown, chief executive officer of Marsh & Parsons, low interest rates have improved affordability for buyers and helped drive activity for those who can get great deals. ‘While uncertainty remains about the outcome of Brexit negotiations, confidence in property remains high for hopeful home buyers, investors and sellers,’ he said.
‘In London, particularly, the market could still be buoyed by the weaker pound and added interest from overseas buyers boosted by results of the US Presidential election as Americans potentially seek solace elsewhere. What is important now is that the Chancellor uses his upcoming Autumn Statement to consider measures to help drive activity in the property market and help buyers onto the property ladder so that momentum is maintained,’ he added.
Patrick Bamford, business development director for AmTrust International, does not think it is necessarily good news for first time buyers. ‘Appearances can be deceptive. In the first full quarter after the European Union referendum mortgage lending to first time buyers has grown by 8% to £14.5 billion but this is a fraction of the rate of growth achieved by home movers, who borrowed £19.8 billion, a quarterly increase of 22%,’ he said.
‘While it is positive to see more first time buyers fulfil their dreams of home ownership, it is no surprise they are outpaced by home mover growth as they face far greater hurdles to enter the property market. Our latest analysis shows that average rates fell three times faster for buyers with bigger deposits so, although affordability has improved for all, those scraping by with small deposits, typically first time buyers, have benefitted at a much slower pace,’ he explained.
He also pointed out that the number of available high LTV products has also declined, which is evidence the market is shifting away from lending to buyers with small deposits. ‘With the Help to Buy Mortgage Guarantee scheme set to end this year, it is imperative we act to keep this part of the market alive. Mortgage insurance via Help to Buy has mitigated the risk to lenders while ensuring first time buyers still stand a chance of entering the market. Private sector equivalents to the scheme will be vital to ensure these gains aren’t lost,’ he added.
