Home owners in the UK borrowed £12.2 billion for house purchases in August, up 14% month on month and 11% year on year, according to the latest data.
They took out 66,000 loans, up 13% on July and 9% on August 2015, the figures from the Council of Mortgage Lenders (CML) show as house purchase activity bounced back with a particular resilience from first time buyers but buy to let loans are down.
Indeed, the data shows that at £5.1 billion, first time buyers borrowed 13% more than in July and 24% more than August last year. This equated to 31,800 loans, up 12% month on month and 19% year on year.
Home movers borrowed £7.1 billion, up 15% on July and 3% compared to a year ago. This represented 34,200 loans, up 14% month on month and 2% on August 2015.
But remortgage activity fell 2% month on month to £5.9 billion but is still up by 41% compared to a year ago. This came to 34,900 loans, up 4% month on month and 40% compared to a year ago.
In the buy to let market landlords borrowed £3 billion, unchanged month on month but down 12% year on year. This came to 19,400 loans in total, up 4% compared to July but down 13% compared to August 2015.
‘House purchase activity bounced back from a dip in July, reflecting resilience in first time buyer activity. Mortgage rates remain at or close to historic lows, and the re-pricing of mortgages following August’s base rate cut should help to underpin a continuing, strong appetite for home-ownership over the coming months,’ said Paul Smee, CML director general.
‘Buy to let by contrast continues to operate at lower levels five months after the stamp duty change on second properties. This appears to be a long term trend, and with lenders potentially tightening affordability checks ahead of the tax changes in April 2017, activity on the buy to let house purchase side may well remain at current levels,’ he added.
Steve Bolton, founder of Platinum Property Partners, also believes that buy to let lending will continue to fall. ‘The stamp duty surcharge is just one in a series of recent changes implemented by the Government designed to penalise landlords and derail the buy to let market,’ he said.
‘Section 24 (the Tenant Tax) will restrict landlords’ ability to deduct mortgage interest costs as a business expense and as a result force many to exit the market or increase rents, when many haven’t done so for years, as their growing tax bill will wipe out any profits. Wealthy, institutional landlords who can purchase properties without the need for mortgage finance will not be affected, creating an unfair playing field and leaving smaller landlord’s financial plans in ruins,’ he explained.
‘The Government’s belief that buy to let tax changes will help residential buyers is hopelessly misguided. Tenants will undoubtedly be hit with higher rents as landlords struggle to stay afloat, making it even harder for them to save for a deposit. We have already seen evidence of this in Ireland, where a similar tax change resulted in a 50% increase in rents over a three year period,’ he pointed out.
‘Although our legal battle to reverse this legislation has now run its course, we are continuing to fight this legislation through lobbying, and will continue to do so until this ludicrous legislation is abolished or the retrospective nature of the tax changes is removed. As the judge said himself, the so called tenant tax raises serious questions socially, politically and economically,’ he added.
However, David Whittaker, managing director of Mortgages for Business, pointed out that there are still good opportunities for landlords looking to expand their portfolios. ‘We may even see lending for buy to let purchases pick back up before the end of the year, as savvy landlords borrowing personally seek to take advantage of existing income cover ratios ahead of the introduction of the PRA’s stricter underwriting rules which come in effect on January 01,’ he said.
‘What we do know for sure is that buy to let purchases by landlords using limited companies is fast becoming the norm ahead of changes to tax relief and the new PRA guidelines will only push more investors down this route,’ he added.
‘There are mixed signals surrounding buy to let, according to Adam Tyler, chief executive officer of the National Association of Commercial Finance Brokers (NACFB), who thinks there are signs of a slight recovery in demand.
‘A thousand more buy to let loans in August than July is not a huge number, especially when you consider that the majority were remortgages, but at the same time it shows landlords and property investors are beginning to regroup,’ he said.
‘You sense, and this is definitely the feeling we get from our own brokers around the UK, that property investors have started to adjust to the new stamp duty regime. Without doubt, many landlords have started to withdraw from the sector, but at the same time others are seeing this exodus as an opportunity,’ he explained.
‘Getting a buy to let loan may now be harder, but if your house is in order the rates available are exceptionally low. Landlords also sense that it is a buyer’s market and so are able to negotiate hard on price, thus mitigating the impact of the extra 3% stamp duty,’ he added.
‘Only this week the Office for National Statistics revealed that people in the UK see property as the asset class that will deliver the best returns over time. We can only see this attitude continuing, despite the stamp duty changes introduced earlier this year,’ he concluded.
