Posts with tag: Mortgage lending

Mortgage Approvals Drop to 15-Month Low in Brexit Month

Published On: July 27, 2016 at 10:59 am

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Mortgage approvals dropped to a 15-month low in June amid concerns over the Brexit vote, according to figures from the British Bankers’ Association (BBA).

Mortgage Approvals Drop to 15-Month Low in Brexit Month

Mortgage Approvals Drop to 15-Month Low in Brexit Month

Data from the trade body shows that mortgage approvals for house purchase fell from 41,842 in May to 40,103 in June, while net lending dropped from £1.6 billion to £1.3 billion over the same period.

On an annual basis, the number of approvals is 11% lower. However, in the first half of the year, approvals were 5.5% higher than in the same period of 2015.

Although the number of mortgage approvals was down, the total value of loans was up, with gross mortgage borrowing of £12.2 billion in June, up by 4% on the same month last year. Borrowing for the first six months of 2016 totalled £79.9 billion, which is up on the £63.6 billion recorded in the same period of 2015.

The Chief Economist at the BBA, Dr. Rebecca Harding, comments: “This month’s high street banking data reflects the uncertainty that was felt ahead of the EU referendum. Business borrowing in June dropped for the first time in 2016, signalling that investment decisions were being delayed until after the vote.

“Mortgage lending and approvals also fell back in June, but remain above the low levels seen in April following the introduction of the Stamp Duty surcharge.”

Andrew McPhillips, the Chief Economist at Yorkshire Building Society, also responds to the data: “These figures show that homebuyers chose not to postpone getting on the housing ladder, despite uncertainty around the EU referendum. That said, it’s important to note that increases in lending are not solely influenced by movements in demand, but also by house prices.

“Current levels of house price inflation are putting upwards pressure on the size of the loans people are taking out, which is, in turn, driving up mortgage lending. There was a 4.9% monthly increase in property transactions in June, according to HMRC, and the fact that lending is increasing on a much steeper scale shows how house price increases are affecting the mortgage market.”

He continues: “Looking at the long-term trends, property transactions are actually down by 10.2% on last year, compared with a 4% increase in lending over the same period. The consequence of increasing house prices is that many people are being pushed out of the market due to the amount of money required to get on the property ladder.

“There is a clear need for more homes to be built, which should act to reduce house price inflation and help to make homes more affordable.”

Positively, however, the latest figures from housebuilder Taylor Wimpey show that customer interest in new homes remains strong, despite uncertainty surrounding the Brexit vote. If the firm continues to build homes at the current rate, housing supply should increase significantly, relieving the pressure on the property market.

Rise in ltd companies marks change in landlord trends

Published On: July 6, 2016 at 10:49 am

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Categories: Landlord News

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Lending to buy-to-let landlords looking to borrow via limited companies was up markedly in the first six months of the year, according to a new report.

The results of the H1 2016 Limited Company Buy-to-Let Index also suggests that the number of products available to limited company borrowers also went up.

Stamp Duty impact

Data from the report shows that the number of buy-to-let mortgage applications completed by limited companies rose to 30% of the total number of buy-to-let completions in H1 2016. This was an increase from the 21% seen in the final half of 2015.

Many landlords moved to incorporate their business, to avoid paying the additional 3% stamp duty surcharge on their investment. In response, the number of lenders offering specific products to limited company borrowers stood at 14, up from 12 last year.

In total, lenders offering limited company products now stands at 42% of the total sector, up from 30% in the first half of 2015.

Stabilised

Mr David Whittaker, managing director of Mortgages for Business, noted, ‘both applications and completions for limited company borrowers appear to have stabilised at around one third of all buy to let business. However this masks a dramatic change in the investment pattern for new purchases where the proportion investing through limited companies has risen from less than 20% by number (25% by value) in the first half of 2015 to over 50% in 2016, with second quarter applications by limited companies running at over 60% of total applications related to purchases of buy-to-let properties. This increasing proportion will also drive an increase in the proportion of completions in the next quarter.’[1]

‘There has only been a slight uplift in the proportion of remortgaging activity that relates to limited company borrowers, due to historical investment patterns. It would, however, appear that some landlords who already own property personally are sitting on their hands somewhat and holding back from remortgaging, probably waiting to see how the economy pans out post-referendum. With the Chancellor announcing his intentions to lower corporation tax to 15% following the Brexit result, we may even witness more landlords financing buy to let property via corporate vehicles. Clearly, the trend for limited company buy to let represents a real step change in behaviour as landlords adapt their investment strategies to mitigate the increased costs brought about by recent changes in the tax regime,’ Whittaker continued.[1]

Rise in ltd companies marks change in landlord trends

Rise in ltd companies marks change in landlord trends

Rises

During March of this year, the number of completed limited company buy-to-let applications increased by more than three times, due to investors rushing to beat the Stamp Duty deadline.

Whittaker concluded by saying, ‘Last year I had thought that limited company pricing might come down a bit as some lenders, including our own lending brand Keystone Property Finance, chose to absorb the increased costs and offer the same rates to landlords borrowing both personally and via the limited company route. The fact that this has not happened may encourage more lenders to enter the space.’[1]

[1] http://www.propertyreporter.co.uk/landlords/growth-of-limited-company-btl-marks-change-in-landlord-behaviour.html

Mortgage Lending Soars in May, But Uncertainty is Expected for the Near Future

Published On: June 28, 2016 at 10:50 am

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Mortgage lending soared in May, hitting the highest level for the month since 2008, according to the Council of Mortgage Lenders (CML). However, uncertainty is expected to hit the property market in the near future, following the Brexit vote.

The CML estimates that gross mortgage lending reached £18.2 billion in May, up by 4% on April and 14% higher than in May last year.

Mortgage Lending Soars in May, But Uncertainty is Expected for the Near Future

Mortgage Lending Soars in May, But Uncertainty is Expected for the Near Future

In April, mortgage lending totalled £17.6 billion, while it stood at just £16 billion in May 2015.

This year’s figure for May marks the highest level for the month since 2008, when gross lending reached £23.7 billion.

The Senior Economist at the CML, Mohammad Jamei, says: “Looking ahead, there is likely to be considerable uncertainty as a result of the EU referendum decision.

“We expect this to affect sentiment and reduce activity below levels that would otherwise be expected in the near term, as both buyers and sellers adopt a wait-and-see attitude until the dust begins to settle.

“Market fundamentals underpinning house prices still look sound, and we do not expect significant house price falls, especially given the current supply-demand imbalance.”

Research conducted over the weekend claims that many homeowners are feeling discouraged from selling their properties due to the EU referendum outcome.

The Chief Executive of the National Association of Commercial Finance Brokers, Adam Tyler, comments: “A wait-and-see attitude and increased caution among buyers and sellers alike is inevitable after the unprecedented political turbulence of the past few days.

“Market fundamentals still look sound and the sharp imbalance between supply and demand will prevent a material decline in prices. Sentiment may have shifted dramatically over the past few days, but the structural imbalance between supply and demand is as strong as ever.”

He explains: “Demand naturally tapered off in the buy-to-let sector following the Stamp Duty surcharge, but it may experience a bounce after Friday’s referendum result.

“Current market and politico-economic volatility could benefit buy-to-let as investors once again look to bricks and mortar as a safe port in a storm, despite the new entry premium.”

Tyler adds: “The fact that the bank rate is now more likely to go down than up in the near term will provide further support to the property market. Understandably, there’s a lot of hysteria surrounding the trajectory of the property market, but our own view is that the reality will prove to be relatively benign.”

The Bank of England’s full response to the Brexit can be found here: /bank-england-releases-statement-following-eu-referendum-result

Investors could pay £10,000 more to secure mortgage

Published On: June 16, 2016 at 8:53 am

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Buy-to-let landlords are set to fork out a further £10,000 to secure a mortgage, following a crackdown on so-called dangerous debts by British lenders.

This new clamp down on worrying debts by lenders is pushing up mortgage costs for buy-to-let landlords. It is thought that banks and building societies will begin to make the substantial fee changes from September 2016.

PRA crackdown

Industry watchdog, the Prudential Regulation Authority (PRA), is concerned that some buy-to-let landlords are stretching themselves too thinly and will as such face difficulties when interest rates eventually rise.

As a result, the PRA is to force lenders to enforce stricter criteria tests, to ensure their investor can afford the repayments on the loan.

At present, investors must prove they can earn enough from their rental yields to cover their repayments. However, the new plans will require plans to see whether or not they could continue to meet these payments, should rates rise by 2%.

Tests

Under these new tests, banks and building societies will demand evidence of a yield of at least 5.2% to qualify for a 25% deposit loan. In essence, this would mean that a borrower would have to earn £7,800 per year in rent on a £150,000 home before paying their mortgage.

This means that investors would either have to raise rents or cut borrowing to ensure that they are covered.

Peter Armistead, of Armistead Property, believes savvy investors will be able to cope with these changes by purchasing cheaper property, with greater yields.

Mr Armistead said, ‘clearly, the investors most at risk are those with smaller deposits who buy property in parts of the UK where rents are low compared with house prices.’[1]

Investors could pay £10,000 more to secure mortgage

Investors could pay £10,000 more to secure mortgage

Regional rates

Continuing, Armistead said, ‘this is a particular problem in places such as London and the South-East where the average annual returns between 2010 and 2015, was just 4.86% in outer London and 4.71% in the City, according to LendInvest. House prices in London are about five times what they are in parts of the North West, but salaries are only 30% higher.’[1]

‘Manchester and Liverpool deliver some of the best rental yields, with Manchester recording average annual rental yields of 6.02% over five years, followed by Liverpool with 5.15% yields. An average residential property in Manchester is just £155,000, while a flat in a good area, costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and by comparison with other regions, housing is cheaper,’ Armistead added.[1]

Concluding, Mr Armistead said, ‘Landlords will find the best returns in urban areas, with a concentration of students and young professionals. If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term.’[1]

[1] http://www.propertyreporter.co.uk/landlords/pra-crackdown-sees-btl-investors-pay-an-extra-10000.html

Buy-to-Let Landlords to Pay Extra £10,000 in Mortgage Crackdown

Published On: June 14, 2016 at 11:21 am

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Buy-to-let landlords could be forced to pay an extra £10,000 to get a mortgage after a crackdown on dangerous debts by UK lenders.

The new clampdown on dangerous debts by lenders is driving up mortgage costs for investors to around £10,000. It is expected that banks and building societies will start implementing new hefty charges from September this year.

Buy-to-Let Landlords to Pay Extra £10,000 in Mortgage Crackdown

Buy-to-Let Landlords to Pay Extra £10,000 in Mortgage Crackdown

The Prudential Regulation Authority, the financial services watchdog, is concerned that some landlords are overstretching themselves and will face difficulties when interest rates finally rise. As a result, it is forcing mortgage lenders to introduce stricter tests to determine whether an investor can afford the loan.

At present, buy-to-let landlords must prove that they will earn enough from rental income to cover their mortgage repayments. However, the new plan will demand proof that they would still be covered if interest rates rose by at least 2%.

Under the crackdown, banks and building societies will require evidence of a yield of at least 5.2% to qualify for a 25% deposit loan. This would mean that landlords must earn £7,800 per year from rent on a £150,000 property before paying the mortgage.

To pass the tests, investors will have to either raise rents to ensure they would be covered if interest rates soared, or reduce borrowing.

Armistead Property’s Peter Armistead believes that savvy landlords can absorb the new charges by buying cheaper properties with higher yields.

He explains: “Clearly the investors most at risk are those with smaller deposits who buy property in parts of the UK where rents are low compared with house prices. This is a particular problem in places such as London and the South East, where the average annual returns between 2010-15 were just 4.86% in outer London and 4.71% in the city, according to LendInvest. House prices in London are about five times what they are in parts of the North West, but salaries are only 30% higher.

“Manchester and Liverpool deliver some of the best rental yields, with Manchester recording average annual rental yields of 6.02% over five years, followed by Liverpool, with 5.15% yields. An average residential property in Manchester is just £155,000, while a flat in a good area costs as little as £120,000. A property in Manchester can provide a 5% minimum cash rental yield and a typical 12% total cash yield, including 7% capital appreciation. Demand for rental accommodation is strong and by comparison with other regions, housing is cheaper.”

He adds: “Landlords will find the best returns in urban areas with a concentration of students and young professionals. If investors can purchase cheaper properties with better yields, they will have the opportunity to protect and boost their profits in the longer term.”

Rise in landlords incorporating their business

Published On: June 13, 2016 at 1:16 pm

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A specialist buy-to-let mortgage firm has observed that lending to landlords that have set up limited companies has risen substantially in the first quarter of the year.

Data from Kent Reliance’s Buy To Let Britain report, shows that 38,000 landlords set up as private limited companies were lent to in Q1 of 2016. This was more than the total lending figure in the whole of 2015.

Rise in lending to limited companies

Further data from the report indicates that the number of loans to private limited companies will increase to around 100,000 by the end of 2016.

Many landlords have chosen to incorporate following the 3% additional Stamp Duty land tax that came into force on April 1st. Borrowing through a limited company sees investors taxed at lower corporation rates. What’s more, they are able to offset financial costs against rental income.

Kent Reliance also said that rents are increasing, as landlords look to offset their increased bills. According to the lender, 40% of landlords believe rents will increase during the next 6 months, by an average of 5.6%.

Rise in landlords incorporating their business

Rise in landlords incorporating their business

Blame game

Almost three-quarters of landlords who are looking to increase their rents blame the reduction in mortgage interest tax relief, which will come into force next year.

Separate research from the Council of Mortgage Lenders shows that the total value of rent collected by buy-to-let landlords in Britain over the last year was £53bn. This was a rise of around 10% from one year previously.