The majority (65%) of mortgage intermediaries expect the level of landlord business to stabilise over the next 12 months, according to the latest Financial Adviser Confidence Tracking (FACT) Index from Paragon, which is based on interviews with 200 mortgage intermediaries.
This report, covering the second quarter (Q2) of the year, marks the first time that intermediaries have forecast a stable outlook for landlord business since the 2015 Summer Budget, when then Chancellor George Osborne announced plans to phase out tax relief on landlords’ finance costs.
The first round of the tax changes, which are being gradually introduced between 2017-21, was implemented in the 2017-18 tax year and will affect tax payments due by midnight on 31st January 2019.
Alongside the 3% Stamp Duty surcharge on additional properties, and new Prudential Regulation Authority (PRA) rules on buy-to-let affordability and underwriting, the tax changes have had a significant effect on property transactions.
The latest figures from UK Finance show that buy-to-let mortgages for property purchases have dropped by around 40%, from 8,900 in May 2015 to 5,400 in June this year. Landlord remortgaging, however, has risen sharply over the same period, from 8,900 to 12,600.
Intermediaries say that almost half (49%) of landlord business is for a straightforward remortgage, with six out of ten landlords who are remortgaging looking to lock in a better interest rate.
Encouragingly, Q2’s FACT results also include the first increase in the proportion of landlords raising finance for portfolio expansion since 2015 – which is up marginally from 22% in Q2 to 23% – and a small rise in applications from first time landlords, edging up to 14% of the total.
John Heron, the Managing Director of Mortgages at Paragon, comments on the report: “It’s encouraging to see intermediaries forecast a more stable outlook for buy-to-let business after such a long period of negative sentiment. Purchase activity continues at much lower levels, but it is interesting to see the step-up in remortgage business, as landlords look to maximise certainty and minimise costs as the interest rate changes start to take effect.”