Landlords are confident of coping with rising interest rates, according to the latest PRS Trends report from Paragon, which is based on interviews with 201 experienced investors.
However, the study also found that landlords are continuing to reduce borrowing, as levels of gearing reached an all-time low in the fourth quarter (Q4) of 2017.
The average loan-to-value (LTV) ratio of investment property portfolios was 35% in Q4 2017 – the joint lowest level recorded in over 15 years – as recent fiscal and regulatory changes targeting landlords have dampened investor motivation to take higher LTV buy-to-let mortgages.
Meanwhile, when asked at what point they would need to sell properties in the event of rising interest rates, landlords appeared confident of coping with increased outgoings, with more than half (51%) saying that any decision to sell properties is not dependent on mortgage interest rates.
Of the remaining 49%, the average mortgage interest rate at which landlords said they would consider selling properties is 5%.
More than four out of ten respondents (43%) said that any decision to increase rent prices is not dependent on mortgage interest rates, and slightly more than half (51%) said that any decision to refinance properties was not dependent on mortgage interest rates.
John Heron, the Managing Director of Mortgages at Paragon, comments: “Contrary to the view held by some, there is strong evidence that gearing levels across portfolios are very low in the buy-to-let sector, with a peak of 43% LTV across all types of landlords in the last 15 years. Since that peak in 2012, gearing has been on a downward trend and currently sits at an all-time low of 35%.
“In response to fiscal changes over the last two years, landlords are clearly less willing to take higher LTV mortgages and borrow more, whilst regulatory changes, though welcomed by lenders, have constrained the market in its ability to offer higher LTV mortgages.”
He continues: “There is no evidence to suggest lending to landlords has been anything other than sustainable. With low levels of gearing, landlords appear well positioned to withstand the higher interest rates that the markets are anticipating, which is good news for buy-to-let and the wider private rented sector.”