New figures from the Council of Mortgage Lenders (CML) reveal that remortgage activity is fuelling growth in the buy-to-let sector.
The latest data shows that home purchase lending in the UK was stagnant in January, but remortgage activity was boosted by a series of low deals.
The CML statistics are now available on an unadjusted basis for the first time, giving a more complete picture, as it is now easier to spot underlying trends, according to the Director General, Paul Smee.
He explains that while the unadjusted data appears to show significant monthly declines, taking away the traditional January lull provides a different picture.
“We see a general picture of flat house purchase lending but a significant uptick in remortgage activity, as borrowers continue to seek attractive new deals, despite the lower-for-longer expectations for interest rates,” Smee says.
The figures indicate that homeowners borrowed £8.4 billion for house purchase in January, down by 25% on the month, but up by 12% annually. They took out 46,200 loans, down 27% on the previous month and up 5% on last year.
First time buyers borrowed £3.3 billion in January, down by 27% from December, but up 14% on January 2015. This totalled 21,400 loans, down 28% monthly, but up 6% year-on-year.
Home movers borrowed £5.1 billion, down by 24% on the previous month, but up 11% compared with last year. They took out 24,800 loans, down 26% month-on-month, but up 3% on the previous year.
Homeowners remortgaging borrowed £5.8 billion, up by 35% on the previous month and 32% compared to 2015. This totalled 33,100 loans, up by 28% on the month and 19% annually.
Remortgage Activity Fuelling the Buy-to-Let Sector
Buy-to-let landlords borrowed £3.7 billion in January, up 9% on the month and a huge 42% over the year. Of a total of 23,100 loans, 13,400 were for remortgage, up by 3% on December and 31% compared with January 2015.
The Chief Executive of estate agent Marsh & Parsons, Peter Rollings, notes that with interest rate rises postponed until next year or beyond, remortgage activity is going from strength to strength, hitting its highest monthly rate for seven years.
“Landlords are in more of a hurry and don’t have long left to snap up investment properties before being struck with more debilitating Stamp Duty,” he says. “As a result, this storming growth in buy-to-let borrowing is likely to be short lived, and be balanced out by a more sedate second quarter of the year.”
He continues: “But Government support schemes have proved a tonic for first time buyers, and this is likely to provide good vitals throughout 2016 as a whole.
“Existing homeowners should be feeling revived too, as house prices show healthy improvements, triggering many to make the plunge and start trading up. It’s supply of homes on the property market that is the fly in the ointment currently, and is the biggest threat to quashing this confidence.”1
The Managing Director of Mortgages for Business, David Whittaker, explains that in the buy-to-let sector, lending is expected to slow down after the rush to beat the 3% Stamp Duty surcharge, which is set to come into force on 1st April.
He says: “Given it takes six to eight weeks on average to process a mortgage application, January and early February represented the last chance for those landlords seeking to beat the surcharge. But equally, the strong annual growth in buy-to-let lending reflects the fact that the sector continues to remain an attractive investment opportunity for those with the patience to wait for steady, long-term returns.
“Looking forward, we expect lending to calm in the second quarter of the year once the Stamp Duty change kicks in and the focus turns to restrictions on buy-to-let finance costs. It is this, rather than the Stamp Duty, which will really change the way the sector operates, as the Government seeks to foster a more business-like tax environment for buy-to-let.”1
However, Peter Williams, the Executive Director of the Intermediary Mortgage Lenders Association, states that it is clear that remortgage activity is fuelling the buy-to-let sector, with almost 4,000 more landlords motivated to switch their deal in January than take out a loan to purchase a new property.
He points out that remortgaging has increased from 55% of buy-to-let loans in January 2015 to almost 59% this year, which he believes is unsurprising, as the forthcoming changes to landlord taxes have prompted many landlords to reassess their finances.
Williams explains: “The impending Stamp Duty shake-up is a clear incentive for landlords to seek to complete on any new purchases before April, but the 8% monthly drop in buy-to-let purchases in January certainly does not look much like a stampede or cause for concern.
“Either way, these policy changes mean we are in yet another period of adjustment, where lending levels are being impacted by a shift from one regime to the next, making it harder to pinpoint what normal activity now looks like.”
He continues: “What’s certain is that the UK housing market needs a healthy private rental sector to remain beyond April 2016, if it is to respond to population increases and rising tenant demand. With the consultation on buy-to-let lending controls closing tomorrow, it seems premature in the extreme for policymakers to take further action that might ultimately weigh down too heavily on this important part of the market.”1
And Steve Bolton, the Founder of Platinum Property Partners, and one of the landlords challenging the reduction in mortgage interest tax relief, claims that landlords have been taking full advantage of record low mortgage rates.
“In the short term, Stamp Duty changes are likely to provide a boost to buy-to-let lending,” he says. “However, landlords who aren’t yet nearing completion will find themselves running up against the clock to avoid being stung by a higher bill.”
He believes: “It makes sense for landlords to minimise their mortgage costs now by swapping to a cheaper deal, as legislative changes on the horizon threaten to make the cost of running a buy-to-let business much higher.
“The phasing out of tax relief on mortgage interest will lead to some landlords running at a loss, and it’s not just landlords who will suffer; tenants will also be hit by higher rents as landlords struggle to stay profitable. Inevitably, some landlords will be forced to leave the sector altogether, further shrinking property supply at a time when more homes are desperately needed.”1
The CEO of Oblix Capital, Rishi Passi, also notes that the EU referendum in June, alongside the tax changes, could affect the buy-to-let lending sector.
1 http://www.propertywire.com/news/europe/uk-home-lending-data-2016031111659.html