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The buy-to-let market stabilises

Buy-to-let activity was mostly unchanged in May, leading to suggestions that it has stabilised, the UK Finance Mortgage Trends Update has found.

There were 5,500 new buy-to-let home purchase mortgages completed in May, the same number as this time last year. There were 15,000 remortgages in the buy-to-let sector, 2% more year-on-year.

Mike Scott, chief property analyst at full-service estate agent Yopa, said: “The number of buy-to-let mortgages for house purchase was unchanged from 2018, suggesting that the buy-to-let market has finally reached a new stable level after several unfavourable tax changes.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “Buy-to-let continues its steady trend, showing that investors are sticking with the sector rather than deserting it in their droves.

“That said, we are also not seeing a flood of new landlords – rather, the experienced ones are adding to their portfolios where they see opportunities and remortgaging to keep costs down.”

Tomer Aboody, director of property lender MT Finance, also highlighted that he hasn’t seen a flood of buy-to-let investors selling up as a consequence of the extra taxes that have hit them.

In 2015 the government said it would start to phase in mortgage tax relief. In 2017 to 2018 the deduction from property income was restricted to 75% of finance costs, in 2018 to 2019 the finance costs are down to 50% and during 2019/2020, 25%.

From 2020 to 2021 all financing costs will be subject to a basic rate tax reduction.

Aboody said: “Investors are absorbing the extra costs and refinancing, hoping that in the long-term values will go up.

“This once again proves that higher stamp duty and extra taxes haven’t helped create more movement in the housing market, but have done the complete opposite and created stagnation instead.”

There were 30,720 new first-time buyer mortgages completed in May, 0.5% more year-on-year.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, attributed this increase in first-time buyer numbers to the slowdown of the buy-to-let market.

He added: “First-time buyers are also taking advantage of reduced competition from the buy-to-let market as landlords reduce activity following various recent tax and regulatory changes with several more on the way which will compromise profitability.

“They are also benefiting from almost record low mortgage rates and improving affordability.”

By Michael Lloyd

Source: Mortgage Introducer

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The buy-to-let market stabilises

Following from regulatory and tax changes, the buy-to-let market seemed to settle in April, remaining unchanged from the previous year, UK Finance’s Mortgage Trends Update has found.

There were 5,100 new buy-to-let house purchase mortgages completed in April, the same as this time last year, and there were 14,400 remortgages in the buy-to-let sector, the same as this time last year.

Gareth Lewis, commercial director of property lender MT Finance, said: “The buy-to-let numbers really stand out because they have remained stable compared with the same period last year, suggesting sustainable activity.

“This is remarkable given all the negativity surrounding the sector and the harsher tax and regulatory environment. Tales of landlords exiting the sector in their droves seem wide of the mark: these figures suggest that isn’t the case at all.

“Part of the continued demand for buy-to-let is down to the lack of alternatives investments. Savings rates are low and monitoring the stock market is almost a full-time job.

“As long as you play the long game with property, there is more certainty of growth and people tend to trust bricks and mortar more than other investments.”

In 2015 the government announced it would start to phase in mortgage tax relief. In 2017 to 2018 the deduction from property income was restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction, in 2018 to 2019 the finance costs are down to 50% and during 2019/2020, 25%.

From 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Andrew Montlake, director of the UK-wide mortgage broker, Coreco, added: “What’s interesting is that the impact of recent tax changes on the buy-to-let market appears to have settled down.

“The buy-to-let market is not what it was but has now reached a new equilibrium.”

Richard Pike, Phoebus Software sales and marketing director, said: “Even the buy-to-let sector is holding its head above water which, given the regulatory and tax changes that landlords have had to withstand, is somewhat surprising.”

Simon Heawood, chief executive and co-founder of Bricklane.com, was less pleased with the figures.

He added: “The number of new buy-to-let mortgages has fallen off a cliff over the last few years, with the total down 50% since 2016. Based on today’s stagnant numbers, we shouldn’t expect that trend to change in the near future.

“The rental market has become increasingly difficult for new and existing landlords to navigate. In addition to a raft of tax penalties, the recent introduction of the Tenant Fees Act and the proposed scrapping of ‘no fault’ evictions show that the market is moving in a pro-tenant direction.

“Landlords will soon be expected to provide a higher standard of service and, faced with diminishing profits and an increasing workload in the buy-to-let market, we expect to see more and more individuals revaluating their portfolios, with many then looking at alternative routes to invest in this asset class.”

There were 18,920 new remortgages with additional borrowing in April, up 0.3% year-on-year. For these remortgages, the average amount taken out in April was £54,000.

Furthermore, there were 19,140 simple pound-for-pound remortgages, with no additional borrowing, 6.2% fewer year-on-year. In total, there were 3.1% less fewer mortgages in April 2019 than in the same month a year earlier.

Jonathan Sealey, chief executive at Hope Capital, said: “In terms of the value, both simple refinance and equity remortgages are down.

“With a steady rise over the past few years in the trend for making home improvements rather than moving, this could suggest some homeowners looking to remortgage in order to add value to their homes ie for a larger equity withdrawal – are now looking to alternative funding for a more tailored service.

“Specialist lenders are continuing to see steady business coming through suggesting that customers increasingly turn to lenders who can offer them a more bespoke solution.”

By Michael Lloyd

Source: Mortgage Introducer

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Buy-to-let sector still offers opportunities

It is easy to forget that behind the scenes of the supposed landlord exodus, one in five UK households still rents privately and there are still attractive opportunities in the buy-to-let and build-to-rent sectors.

This truth is not lost on the slew of property investment platforms out there, which continue to grow, many of which are technically peer-to-peer firms or intermediaries rather than asset managers.

You might even say there has been an air of over-confidence, as an explosion in P2P property investment has sparked a flurry of interest from institutional investors.

However, lack of a track record coupled with lingering suspicions surrounding the wildly different range of approaches taken by such firms, has held the sector back.

It is not hard to see why — it is all about risk. At one end of the spectrum, some offer seemingly attractive returns riskier development projects without any concern for their performance.

At the other, you have asset managers with a vested interest in performance.

In every new fintech industry, harsh lessons are learned. Some models fall by the wayside and it is normally those that cut corners. Property investment platforms have not experienced a day of judgement like this yet.

Sky-high default rates sparked a wave of platform collapses in China this year and the Financial Times revealed in November that £112m of the £180m in Lendy’s loan book was at least one day overdue in October. Warning signs the day of reckoning may be closing in?

Natural selection is coming in 2019 and the defaulters will identify the fittest so advisers do not have to.

We just have to get the bloodletting out of the way first.

Source: FT Adviser

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The places where Buy to Let still pays off

North West and Liverpool are hotspots for property investors and amongst the places where Buy to Let still pays off.

A recent article on thisismoney.co.uk discusses how the North West’s comparatively strong rents, coupled by low house prices, makes it a buy-to-let hotspot right now.

As capital gains forecasts dampen in London and house price growth in the capital becomes worse than anywhere else in the country, investors are looking to other regions for attractive returns.

Totally Money compiles a regular buy-to-let investment report on the top towns and cities for property investors. It states that not only does Liverpool’s high rental demand make the city a dependable market for landlords, but its house prices are relatively cheap when compared to many other areas in the UK. All of this allows for fewer void periods for landlords and good yield returns.

Emma Cox of Shawbrook Bank commented: “Landlords have had a rough ride over the past few years with multiple tax changes. But our research shows that it’s not all doom and gloom for potential investors.”

The above shows Shawbrook’s ranking of Britain’s regions by rental yield, which measures average rents that could potentially be achieved against average house prices. The North West leads the yield ranking with an average yield of 5.4 per cent.

“Lower rental yields in London and affordability constraints for investors has driven interest North, where borrowers are chasing the yield and heading to locations with lower average house prices,” Emma Cox continued.

Buy-to-let mortgage rates continue to fall

Lenders are continuing to slash their buy-to-let mortgage rates in an attempt to lure in new business.

Average rates in the buy-to-let sector have dropped significantly since changes were originally introduced in 2015 – indicating how keen lenders are to get new business onto their books as demand drops.

For example, TSB is currently offering a two-year fixed rate deal at 1.30 per cent with a fee of £1,971 and a maximum loan-to-value of 60 per cent.

Sainsbury’s Bank has a three-year fixed rate deal at 1.49 per cent with a £2,021 fee at 60 per cent loan-to-value.

All the above, coupled with the recent Savills residential property forecasts report predicting that the North-South divide will be turned on its head during 2019 to 2023. The biggest price rises are predicted in the North West (21.6 %). So we hope you are just as excited about about investing in Northern locations as we are!

Source: Property118

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Limited company buy-to-let has changed the market

I wrote in an earlier post that buy-to-let was evolving at a pace and that the rush to incorporate so many investor borrowers would inevitably create a different looking market.

And so it has come to pass. According to Mortgages for Business’ Buy to Let Index, the number of buy-to-let lenders lending to limited companies has risen by 47% over the past year. 22 buy-to-let lenders now lend to limited companies – up from 15 in Q3 2017 and the total number of mortgage products available to them has more than doubled since Q3 2017 – from 263 to 628. The result has been that 44% of buy-to-let transactions now made by limited companies – up from 42% in Q2 2018

This change in market behaviour should not surprise us. We are only just over a year from last September’s changes issued by the Prudential Regulation Authority, the 3% stamp duty surcharge on second homes in April 2016 and a withdrawal of tax relief by 2020.

We’ve already seen that the more stringent rules on buy-to-let lending has meant the near two million ‘hobby’ landlords who own 15% of the housing market have found it increasingly difficult to raise finance from traditional lenders but many have also embraced the business model of Houses of Multiple Occupancy in an effort to improve yields unaware of the many more stringent rules that accompany these kinds of dwellings.

Limited company structures do not come without their challenges and costs for all concerned. They not only affect individual borrowers’ tax positions but also demand skills in lenders such as understanding how company structures and law affect lending positions.

Completely new companies have no trading history or track record of success upon which lenders can base their decisions. Without any credit history it’s hard to establish the chances of the loan being repaid. In these circumstances, the lenders that do consider such applications often ask for personal guarantee’s from the directors, so that should the mortgage not be repaid the directors become personally responsible.

There may be additional administrative costs related to operating as a limited company, and in some instances it can be more complicated to transfer property and assets. When a property is sold via a limited company, it is subject to corporation tax, rather than capital gains tax. While the rate of corporation tax is lower than the rate of capital gains tax, an individual benefits from the capital gains tax allowance, which does not apply to a company.

There is the expectation that people borrowing through companies realise there are no blurred lines. A limited company has its own legal personality, which is separate to the individuals who participate in it. Rent the company earns cannot be spent on things other than business activities without these becoming a taxable wage or benefit. Because the extraction of money has to be through salary and dividends that money is subject to rules under the companies act and there is tax to pay for the recipient/shareholder.

It is when things go wrong that expertise is really in demand. A company does not retain the same rights an individual in the law or in practice and these has implications for tenants and landlords. A lender that has lent money to fund the purchase of a borrower’s home may be sympathetic when circumstances cause a borrower to get into mortgage arrears.

Further, the mortgage lender has a regulatory duty to help that borrower address the problem. However, where money has been lent on what is effectively a commercial enterprise, the lender may not be prepared to listen to excuses and may be much quicker to initiate repossession proceedings once a borrower gets into mortgage arrears. In some cases where arrears have built up on a buy-to-let property, the lender may appoint receivers to administer the property and accept any rents being paid.

Clearly, proper management of these loans and the processes for recouping losses in the sector now requires levels of expertise previously not required. From seeing the opportunity to underwriting complicated company structures, lenders need commercial underwriters to assess properly the opportunity to lend and experienced professionals if things do not go according to plan.

Source: Mortgage Introducer

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Has there been a better time to be a buy-to-let investor?

Regular readers of The Motley Fool will know that we writers, broadly speaking, are not exactly cock-a-hoop over the buy-to-let sector.

A litany of issues, from painful tax changes to slowing (or even reversing) home price growth, from rising interest rates to inconvenient and even costly regulatory changes governing tenancies, mean that this type of property investment is now a minefield.

Having said that, some would argue that the financial market volatility of the past month shows how buying bricks and mortar is a much safer and more stable investment destination than stock investing, the sharp sell-off dragging both good and bad stocks through the floor.

And there’s room for plenty more pain to come down the road. The seeds of last month’s market panic, i.e. concerns over interest rate rises in the US choking off global growth allied with fears over the implications of President Trump’s trade wars with China, haven’t gone away. And other problems like the short- and long-term implications of Britain’s Brexit saga; the emergence of Cold War 2.0; and fiscal battles between Italy and EU lawmakers, add extra layers of fragility to the current trading climate.

Mortgage choices are rising… but so are costs
For risk-averse investors, now would appear to be a great time to get into buy-to-let investment, and particularly as the range of mortgage products available to landlords continues to grow, more than doubling over the past year, in fact.

And there’s been a slew of new products brought out in the past few days alone. Among the big movers, Atom Bank entered the rentals arena at the start of the week with the introduction of two- and five-year tracker mortgages, and Paragon Bank expanded its suite of products to include a specialised product for expat landlords and UK holiday lets. These moves followed digital lender Molo Finance entering the buy-to-let sector in late October.

Increased competition in the market should mean good news for consumers, of course. But investors need to be aware that right now mortgage costs are rising. A report from broker Property Master this week showed that the monthly cost of a two-year fixed rate £150,000 buy-to-let mortgage rose between £2 and £5 due to recent Bank of England interest rate rises, and between £4 and £5 for a five-year fixed rate product.

Sure, these additional costs are not exactly astronomical. But as Property Master pointed out, further rate rises from Threadneedle Street may be just around the corner, a scenario that would likely push mortgage costs still higher.

Stick with stocks
All things considered, I’m yet to be convinced that buy-to-let is a smart way to use your cash today. Irrespective of last month’s stock market sell-offs, investing in shares remains a vastly superior way of generating strong shareholder returns over a long time horizon, something that has been proven time and time again.

Sure, buy-to-let was a wise way to make your money work in years gone by as Britain’s homes shortages pushed property prices and rents through the roof. But the raft of increasing costs and ratcheted-up regulations make it quite a problematic investment arena, and one that is likely to get trickier. I for one will continue to shun the temptation of buy-to-let.

Source: Yahoo Finance UK

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Buy-to-let home purchase mortgages drop by 20 per cent

The latest UK Finance Mortgage Trends Update for August 2018 reveals that there was a significant drop in the number of new buy-to-let house purchase mortgages completed in August 2018. The data shows a 13 per cent drop in buy-to-let home purchase mortgages completed in August this year compared with August 2017. By value this was £0.8bn of lending in the month, 20 per cent down year-on-year.

Experts from Property Partner, the online property stock exchange, attribute the slowdown to the ongoing impact of tax changes as well as the recent interest rate rise. This is supported by the findings of a survey of more than 1,000 buy-to-let landlords, conducted on behalf of Property Partner, which finds that more than half (54%) of BTL landlords are selling some or all of their properties as a result of the changes.

The research also finds that the introduction of an extra 3% stamp duty on the purchase of additional homes and the reduction in mortgage interest tax relief, as well as the recent rate hike will hit the pockets of renters most:

  • 38% of BTL landlords would increase rent to compensate for interest rate rises
  • 37% of BTL landlords would increase rent to compensate for increased costs from buy-to-let changes

Other key findings:

  • 35,500 new first-time buyer mortgages were completed, some 2% more than in the same month a year earlier. The £6.1bn of new lending in the month was 5.2% more year-on-year.  The average first-time buyer is 30 and has a gross household income of £42,000.
  • 38,000 new homemover mortgages were completed, some 2.3% fewer than in the same month a year earlier. The £8.5bn of new lending in the month was the same year-on-year. The average homemover is 39 and has a gross household income of £57,000.
  • 37,100 new homeowner remortgages were completed, some 0.3% fewer than in the same month a year earlier. The £6.5bn of remortgaging in the month was the same year-on-year.
  • 13,800 new buy-to-let remortgages were ompleted, some 4.5% more than in the same month a year earlier. By value this was £2.2bn of lending in the month, 4.8% more year-on-year.

Mark Weedon, Head of Research at Property Partner, says: “The Government’s big shake-up of buy-to-let investing is evidently taking its toll on landlords, but the changes are hardly having the desired effect for renters.

“This data may show that existing landlords have not yet sold off their investments in swathes as they look to re-mortgage. However, our research suggests buy-to-let landlords are finding other routes to ensure their investments remain economic. 37% of buy to let landlords say they would increase rents on account of the buy-to-let crackdown. This will make it harder for those with dreams of home ownership to save for a deposit, as more spending will go towards their monthly rent. Ultimately, the Government must consider the impact of its policies, and urgently review the mechanics of the buy-to-let sector which is key to a strong and growing private rental sector. Penalising buy-to-let landlords can in turn penalise tenants.”

Commenting on the data, Jackie Bennett, Director of Mortgages at UK Finance, said: 

“Overall house purchase completions remain stable, driven largely by the number of first-time buyers which reached its highest monthly level since June 2017.

“Buy to Let remortgaging saw relatively strong growth in August, due in part to the number of two year fixed deals coming to an end. This suggests that while new purchases in the buy-to-let market continue to be impacted by recent tax and regulatory changes, many existing landlords remain committed to the market.

“However, the homeowner remortgaging market has softened slightly, reflecting the many borrowers who had already locked into attractive deals in the months preceding the Bank of England’s base rate rise.”

Source: London Loves Business

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Buy to let more profitable than two years ago

Tax relief on mortgage interest for buy to let investors is currently being phased down to the basic rate, with the changes predicted to leave some landlords struggling to earn as much from properties.

However, a sharp reduction in mortgage rates over the past couple of years means most landlords are now taking larger profits, even taking account of the erosion of tax benefits, according to Pantheon Macroeconomics.

The economists found the average two-year fixed-rate at 75% loan to value (LTV) on a buy-to-let mortgage fell to 2.37% in May, from 3.21% in May 2016.

Samuel Tombs, chief UK economist at Pantheon, said: “A buy-to-let investor refinancing a two-year fixed mortgage that they obtained in May 2016 will save £1,400 per year in interest payments, assuming that they have purchased a property of average value.

“After the tax reforms and the fall in mortgage rates, virtually all buy-to-let investors are better off.”

However, the market could take a turn if the Bank of England raises interest rates and mortgage costs increase.

Tombs added: “We do not expect the market to be hit suddenly by a wave of fire-sales by landlords this year.

“That could change as and when mortgage rates jump.”

Landlord sales could dampen house price growth

The economist noted that if only a small number of buy-to-let investors decide to put properties on the market, the balance between supply and demand could weigh on house prices – and this could be another prompt for selling.

It comes after the Royal Institution of Chartered Surveyors (RICS) last week noted a larger increase in supply versus demand, through the number of new estate agent sale instructions and new buyer enquiries.

Tombs added: “Many BTL investors purchased properties to benefit from capital appreciation, as well as to enjoy a steady income stream.

“The recent slowdown in house price growth might persuade them to liquidate their investments even though borrowing costs have fallen.”

The reduction of tax relief will most hurt landlords with high incomes and high ratios of interest payments to rental income, according to Pantheon.

Tombs predicts multi-unit investors are most likely to sell up, as their income could exceed the higher rate threshold.

Source: Your Money

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Buy to Let Club reports significant shift towards 5-year fixed products

An increasing number of landlords are selecting 5-year fixed rates in favour of short-term alternatives, the Buy to Let Club has found.

Buy to Let Club has confirmed that the percentage of its buy to let business resulting from 5-year fixed products has risen to 42%. During the same period two years ago, 5-year fixes accounted for just 15% of its business.

This increase is in line with recent industry trends and points towards landlords seeking greater security during a time of economic uncertainty as Brexit negotiations continue.

Ying Tan, managing director of Buy to Let Club, said: “We’ve seen a steady increase in the number of clients opting for 5-year fixed rates over the last few years.

“With extremely competitive rates and the added security that they present, it is not surprising that they are a popular option for investors. Of course they also have the added benefit of less stringent affordability tests that make them appealing for raising finance against low-yielding properties.

“We have a number of fantastic 5-year rates at present including a brand new exclusive with Santander at 2.54% with a £1,999 fee up to 75% LTV that is available for both purchases and remortgages.

“Principality’s 2.55% rate and Virgin Money’s 2.64% rates at the same LTV are also proving popular.”

The market will also be capitalising on the fact that 5-year fixed rates are at an historic low.

Between 2008 and 2013, the average 5-year fixed buy-to-let rate at 75% LTV fluctuated between 5% and 7%, yet today many lenders are offering products at rates less than 2.7%.

These latest statistics also highlight that brokers are not just providing a product which they can look to remortgage in two years’ time to earn another fee.

Source: Mortgage Introducer

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More landlords will buy using limited companies

Nearly two out of five (38%) landlords will use limited companies to buy properties over the next year compared to 28% as individuals, highlighting the continuing rise of the professional landlord.

Precise Mortgages found that among landlords with more than four properties the percentage buying new property via a limited company rose to 42%, while it dropped to 31% among those with up to three properties.

Landlords operating in London are the most likely to be planning to purchase through a limited company.

Alan Cleary, managing director of Precise Mortgages, said: “Buying property within a limited company structure has become increasingly popular, particularly among larger professional landlords.

“Given the predicted rise in landlords switching to limited company status this year, we can expect this trend to continue.”

“The contrasting levels of awareness of the PRA’s recent changes to lending criteria and the application process between small and larger portfolio landlords points to the growing professionalisation of the latter group who stand to be the most affected.”

“Precise Mortgages is currently one of the most recommended specialist mortgage lenders, helping landlords to find solutions and supporting them through the process.”

Some 89% of brokers expected the number of landlords setting themselves up as a limited company to increase, with the ability to continue to claim tax relief on mortgage interest seen as the main motivation.

Around 15% of landlords intended to add to their portfolios over the coming year, buying an average of two new properties, the BDRC study found. And about 23% of those planning to buy will add three or more properties to their portfolio.

The BDRC also found landlords with larger portfolios are significantly more aware of the Prudential Regulation Authority (PRA)’s lending criteria and portfolio application process changes.

Less than half (45%) of all landlords are aware of PRA changes but that rises to 67% among landlords with four or more buy-to-let mortgages.

However, 74% of those with larger portfolios thought the changes have made it more difficult to secure buy-to-let finance, underlining the growing demand for specialist lenders.

Source: Mortgage Introducer