New buy to let lending bounced back in fourth quarter of 2016

Following a shift to more remortgaging in the buy to let lending market, more landlords moved to purchase properties in the final quarter of 2016, the latest data shows.

After the Brexit vote in the summer and concerns about changes to stamp duty for additional homes the number of mortgages for new purchase fell in the third quarter of the year.

But the latest buy to let index from Mortgages for Business shows that while remortgaging continued to account for the bulk of activity, lending for purchase’s market share returned to levels seen earlier in the year.
The share of lending for purchases in the vanilla buy to let market, that is standard buy to let transactions, increased from 28% in the third quarter of 2016 to 38% in the fourth quarter.

Meanwhile, there was a more subtle shift in the Houses in Multiple Occupation (HMO) lending market, with the share of purchases rising to 26%. While this is below the level seen in the second quarter, it brings this part of the market back in line with the level seen before the announcement of the changes to landlords’ tax relief in 2015.

‘It is encouraging to see that the share of lending for purchase in the buy to let mortgage market returned to normal in the fourth quarter of 2016,’ said David Whittaker, chief executive officer of broker Mortgages for Business.

‘Following a notable shift towards lending for remortgage in the third quarter, landlords showed they were once again willing to commit to new purchases. The outcome of the European Union referendum, and the subsequent macro-economic uncertainty dampened purchase lending in the third quarter with many landlords initially opting for a cautious approach,’ he explained.

‘While changes to stamp duty on second properties and landlords’ tax relief mean that landlords need to approach their investments intelligently, there are still excellent returns to be had in the market – especially compared to other asset classes,’ he added.

The results of the index also show that the average loan to value (LTV) ratios across all products remained stable at 67% in the final quarter of 2016. Gross yields also remain unchanged.

The index also reveals that there was a significant uplift in the typical property value and loan size in the multi-unit block mortgage market. This is due to an increase in the number of mortgages being taken out on very high value multi-unit properties. Over the fourth quarter some 30% of multi-unit applications involved properties worth more than £1,000,000.

‘There is clearly an appetite among investors for more valuable multi-unit blocks, with the lending share of million-pound plus blocks from growing under a fifth in the third quarter to almost a third in the fourth quarter,’ Whittaker pointed out.