Over 2015, buy-to-let remortgage transactions surpassed purchase loans by more than 2:1, according to the latest Complex Buy to Let Index from specialist broker Mortgages for Business.
It found that in the fourth quarter (Q4), remortgages for vanilla buy-to-let properties accounted for 64% of all transactions. Remortgages for Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs) experienced even greater activity, at 78% and 88% respectively.
Buy-to-Let Purchases to Outstrip Remortgages as Landlords Rush to Invest
Managing Director of Mortgages for Business, David Whittaker, explains: “The results aren’t surprising; for some time now, landlords have been making considerable savings through remortgaging. Many have also been releasing equity to make improvements and plan further purchases.”
Although, he does expect this to change: “I anticipate that we will see a reversal of this trend in the first quarter of this year, as landlords hurry to expand their portfolios before the Stamp Duty surcharge kicks in on 1st April.”
And Paul Mahoney, the Managing Director at Nova Financial, agrees. He says: “The 3% Stamp Duty premium for buy-to-let properties and second homes has put somewhat of a deadline on those seeking or considering a property investment. That has and will continue to cause a spike in activity in the lead up to April.
“The change makes completing on an investment prior to the 1st April more attractive and we have found this is spurring those considering an investment into action. We expect the market to return to normality following April and continue the strong performance experienced in 2015.”
Whittaker has also already seen a change in the market: “The number of enquiries for purchase finance is already well ahead of where we were this time last year, particularly from those looking to sell their personally owned property into a corporate vehicle.”
From 1st April, buy-to-let investors and second home buyers will be charged an extra 3% in Stamp Duty on properties worth over £40,000. Those purchasing 15 or more properties in one transaction will be exempt from the charge.
Mortgages for Business’s data shows that yields across all property types recovered in Q4 2015, but in real terms they continue to remain static, as rental income fails to keep up with house price growth. However, returns for more complex investments remain strong.
The amount of lenders offering buy-to-let mortgages has remained at 33, although the number of buy-to-let mortgage products available has increased slightly to an average of 975 over the quarter.
Whittaker comments: “It is unlikely that this average figure will be topped going forward unless new lenders enter the market, or some of the existing providers start to offer products to limited companies.
“Of course, that figure is only an average – at one point at the beginning of December our tracking system, Mortgage Flow, showed 1,168 products.”1
How have/will the changes affect your investment activity?
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This will be changed now, thanks Ben
"Some landlords are avoiding the hike by turning their lettings businesses into limited companies, which aren't affected by the change."
This isn't actually the case; the surcharge will apply to additional property purchases by individuals or limited companies, unless either meets the exemption criteria.
From the consultation document: "The higher rates will also generally apply to purchases of residential property by companies."
The Treasury even goes as far as to state that the first purchase by a limited company or collective investment vehicle should be subject to the surcharge, in order to avoid potential tax avoidance. (See 2.02: The first purchase of a residential property by a company or collective investment vehicle.)
The Treasury proposes creating an exemption either for buyers who own a portfolio of at least 15 residential properties at the time of the transaction, or for bulk purchases of 15 or more residential properties. The current intention is to apply this exemption for individuals as well as companies. (2.19: The treatment of large scale investors.)