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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

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Buy-to-let lending tumbles by almost half since introduction of Stamp Duty surcharge

Buy-to-let lending is down 47% on levels before the introduction of the 3% Stamp Duty surcharge levied on the purchase of additional properties.

It is also down 64% compared with the pre-2007/2008 housing market crash.

In a new report on the residential housing market, Cushman & Wakefield say that with further phasing in of the reduction in income tax relief will ensure that lending activity stays muted.

The consultancy also notes that some landlords are selling off properties, and that there are only limited numbers of new investors entering the market.

Nevertheless, Cushman & Wakefield think that housing stock in the English private rented sector will contract by no more than 3% over the next two years.

Its report also shows a mismatch between supply and demand, particularly with the most expensive and cheapest properties.

In March, 6.1% of properties listed on Rightmove were at over £1m. However, just 2.7% of completed sales that month were for over 2.7%.

The opposite was true in the sub-£200,000 market, which accounted for 45% of all sales but just 30% of listings.

Source: Property Industry Eye

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Third Of Mortgage Brokers’ Buy To Let Business From Limited Companies

Approximately a third of mortgage brokers’ buy to let business will come from limited company clients in the next few years.

The prediction came from Mortgages for Business chief executive David Whittaker. Whittaker stated that there remained ‘considerable opportunity’ for mortgage brokers in the buy to let sector, despite a shrinking rental market.

At the Financial Services Expo in Manchester, Whittaker stated that falls in buy to let lending were beginning to stabilise but an uptick is not on the horizon. He said: ‘In 2018 we expect there to be £32 billion of gross lending, and this will fall to £28 billion in 2019. However we do believe this will have bottomed out by 2020, and a reshaped buy to let market is where advisers will do very well.’

Research from Mortgages for Business suggests that the buy to let market is currently evenly split between limited company and sole name business. However, seven out of 10 new purchases are now completed via a limited company structure proving its popularity.

According to One Savings Bank sales director Adrian Moloney, 17 lenders now offer close to 300 limited company products for mortgage brokers to choose from.

Whittaker also called for increased transparency from for buy to let lenders regarding their policies for properties that fail the new Energy Performance Certificate regulations.

The regulations that came into force on 1 April this year make it illegal for landlords to start new tenancies if a property has an EPC rating of F or G.

Whittaker said: ‘What will lenders’ position be on properties which don’t make the grade? As of now only three lenders have made their position clear on this issue. Clients will need the right EPCs on all their properties, but 4.3 per cent of properties are currently in the worst ‘G’ rating – and over 11 per cent of these are in the private rental sector so this could be a major issue.’

Source: Residential Landlord

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Colchester is top area for buy-to-let

Colchester in Essex is the top area to invest in buy-to-let based on capital growth, transaction volumes, rental yield and rental price growth, LendInvest research shows.

In Colchester prices are rising by 9.98% per year, rental growth is increasing by 3.41%, transaction volumes are rising by 2.79% and yields stand at 3.71%.

Despite topping LendInvest’s list Colchester is far from the best in terms of yield, with Manchester offering returns of 5.42%.

Ian Boden, sales director at LendInvest, said: “We don’t subscribe to the idea of a mass house price growth slowdown throughout the country. Instead we wanted the Index to show us where the slowdown is hitting hardest, and where the opportunities continue to abound for UK landlords and property investors alike.

“Predictions for the overall growth of the housing market remain positive for the year ahead but this quarter’s Index indicates that house price growth slowdown is impacting on different regions to different degrees.

“There are reasons to be cheerful in many places around the country. Looking at the South West and the Midlands in particular, we can see modest slowdown occuring that’ll keep market activity buoyant.”

Other top areas to invest in buy-to-let are Northampton, Leicester, Luton, Birmingham, Manchester, Ipswich, Brighton, Rochester and Norwick.

Boden added: “Striking the right balance when it comes to making property investment decisions is crucial; however, the current limitations in house price growth mean fewer opportunities in the market to perform a traditional “flip” of a property to get a return.

“We can expect to see investors taking longer-term positions in property as they look to yields and rental price growth as valuable metrics in the short-term to determine the profitability of an asset.

“The best way for investors to take advantage of the volatility in the rental market is to seek out buy-to-let opportunities.”

The worst area to invest is in East Central London, where capital gains are falling by 3.76%, rental price growth is sliding by 1.1% and transaction volume growth is down 1.73% year-on-year. Despite all of these factors landlords in that area still make a yield of 2.9%.

Source: Mortgage Introducer