Buy-to-let mortgage rates in the UK are on the up again, adding to the mounting costs facing landlords entering the market. Buy-to-let investors having been facing a growing number of headwinds in the last year, following government hikes to stamp duty and a gradual phasing out of mortgage interest tax relief. While the threat of banning tenant fees for letting agents threatens to see more costs passed on to landlords, lenders have been working to keep the private rented sector attractive to investors by lowering rates.
In April, though, rates appear to have bottomed out, according to Mortgages for Business. The firm’s latest index shows that fixed rates rose in April across two, three and five-year terms. After a first quarter defined by successive rate cuts, April saw BTL fixed rates increasing in a near-perfect reversal of March’s reductions. Only five-year fixed rates failed to return to their February averages, remaining 0.01 per cent lower at 3.76 per cent versus 3.77 per cent in February.
This is the first month since January when the Index has shown any rate increases, both among fixed and variable products. Average rates for some terms had consistently fallen for even longer, particularly three-year fixed rates, which fell every month between April 2016 and March 2017. Across this period, the average three-year fixed rate fell from 4.50 per cent, to 3.53 per cent, with each new month from June setting a new record low.
Steve Olejnik, COO of Mortgages for Business, comments: “For some time now Buy to Let mortgage lenders have been cutting rates to maintain lending volume in a sector that has been actively targeted by both the taxman and the regulator. Rates can only fall so far, however, and figures from April suggest we may have reached the limit.”
Landlord LTVs get lower and lower
10th April 2017
Gearing amongst landlords remained low in Q1 2017, with the average loan-to-value (LTV) ratio decreasing by 2 per cent to 35 per cent, according to Paragon Mortgages’ latest PRS Trends Report for Q1 2017.
68 per cent of landlords now have borrowings of less than half the value of their investment property portfolios and, since Q2 2012, average gearing has reduced significantly, from 42 per cent, indicating the PRS is de-leveraging and has been for some time.
On average, landlords spend 30 per cent of their rental income on mortgage payments, with almost half (43 per cent) in Q1 2017 saying they spend less than a quarter. Although buying intentions remain subdued, there has been no large-scale sell off by landlords of buy-to-let properties. The size of the average portfolio is 13 properties, unchanged from Q4 2016 and the forecast is stable, as landlords indicate they do not expect their property portfolios to change in size over the next 12 months.
The average value of investment property portfolios is unchanged at £1.7 million following a sharp increase in Q4 2016 and is now reaching its highest ever levels. 1 in 4 landlords expect value to increase in the next 12 months, whilst just 8 per cent think it will decrease.
John Heron, Managing Director, Paragon Mortgages, says: “Average gearing is low and getting lower, and this long-term de-leveraging demonstrates just how financially conservative buy-to-let landlords are. Looking ahead, it’s realistic to expect this downward drift in gearing to continue as the PRA’s new buy-to-let underwriting standards take effect.
“Our PRS Trends Report indicates a resilient sector in Q1 2017 but, as the mortgage interest rate tax changes filter through between now and 2021, landlord confidence may be eroded further which could well result in a reduction in the supply of property to the sector and, in turn, higher rents.”
Landlord remortgaging jumps ahead of tax changes
17th March 2017
The number of landlords remortgaging jumped at the start of 2017, as the buy-to-let sector braces for a damaging tax change.
Gross buy-to-let lending saw month-on-month increases of 11 per cent by value in January 2017, according to the Council of Mortgage Lenders, and 12 per cent by volume. Compared to January 2016, though, both the number of loans and the amount borrowed decreased by 16 per cent.
“Buy-to-let house purchase activity continues to be weak, despite strong buy-to-let remortgage levels,” comments Paul Smee, director general of the CML. “This will likely remain so going forward as lenders tighten affordability criteria ahead of the PRA mandated stress tests, and the introduction of tax changes in April.”
Steve Bolton, Founder of Platinum Property Partners, who is leading a coalition of landlords against the tax changes, adds: “The buy-to-let market saw a slight resurgence in mortgage lending activity in January: but year-on-year, the effects of recent punitive tax changes and tightened affordability criteria are clearly visible. The market is predominantly being kept afloat by remortgage activity, which now accounts for over two thirds of total BTL lending. Today’s low interest rate environment means landlords stand to make significant savings by swapping to a new deal.
“However, purchase BTL activity is being dampened by a string of regulatory changes impacting the market. The stamp duty surcharge caused a spike of activity last March, but has since reduced the number of landlords looking to expand their portfolios. Next month, private landlords’ ability to deduct finance costs as a business expense will be restricted, which poses an even greater threat, as many investors will see their tax bill erode their profits. Some will ultimately leave the market, while others will be forced to put up rents for their business to remain viable.”
Lenders lower buy-to-let mortgage rates to combat rising costs
24th February 2017
Lenders are lowering their buy-to-let mortgage rates to combat the rising costs facing landlords.
In 2014, Britain had over two million landlords renting out 5 million propertie and by 2020 it is predicted that across the UK 28 per cent of all properties will be rented. The figures for England are even higher with a new report highlighting that 37 per cent of all homes in England are rented (20 per cent privately, 17 percent socially).
Despite the importance of the private rented sector, though, landlords are facing rising costs, as a result of government measures, including the phasing out of mortgage interest tax relief, a stamp duty surcharge and a ban on letting agent fees for tenants.
A growing number of lenders, though, are starting to lower their buy-to-let mortgage rates in an attempt to combat the higher expenses facing investors.
In January 2017, Barclays launched a range of fee-free products for buy-to-let borrowers, with extended loan-to-value ratios.
A two-year fixed mortgage, for example, is offered at 2.09 per cent with a 1 per cent fee, while a five-year fixed rate is at 2.99 per cent with a 1 per cent fee, both at 75 per cent LTV.
Today, Kent Reliance, part of specialist lending group OneSavings Bank, announced major changes to their BTL specialist mortgage range, with rates now starting from 2.99 per cent, their lowest ever interest rate.
Coming into effect on Friday 24th February 2017, the price reductions across the 2 and 3 year products of their specialist range apply to limited company lending, HMOs and multiple flats under one freehold and supplement the recent changes made to 5 year fixed pricing.
Adrian Moloney, Sales Director at OneSavings Bank says: “As tax and regulatory changes continue to impact the market, specialist lenders need to adapt quickly to support these changes. These rate reductions are in direct response to the feedback received from our brokers who are actively seeking products for the increasingly evolving landlord market.”
Saffron For Intermediaries, the dedicated intermediary channel of Saffron Building Society, has launched 5-year fixed rate deals for expats purchasing or remortgaging rental property and for landlords wanting to refurbish properties.
Anita Arch, Head of Mortgage Sales, said: “Our specialist buy-to-let products not only feature attractive fixed rates, but also accommodating criteria. For example, there are no country restrictions on the expat product and the light refurbishment deal enables landlords to purchase or remortgage property and make alterations before the property is let out. Additional funds can also be released after a satisfactory re-inspection and confirmation of improved end-value and rental income.”
According to the Mortgages for Business’ January Buy to Let Mortgage Product Infex, the average price of two- and three-year fixed rate products is now at a record low of 2.92 per cent and 3.76 per cent respectively.
MORE TH>N, meanwhile, has pledged landlords that they will keep prices fixed for their Landlord Insurance product when and if they renew their coverage next year.
This offer is regardless of whether a claim is made, or whether the rate of insurance premium tax goes up.
“Britain’s two million plus landlords now have a much-needed-break to help control their finances in these uncertain Brexit times,” says the firm.
The fixed price promise applies to all new landlord insurance products including multi-property, contents only and also includes the price of any add-ons purchased.
Anthony Taylor, head of MORE TH>N Business, explains: “We hope landlords don’t consider this offer to be too good to be true. This is a genuine offer to help landlords manage their costs. We are proud to be the first UK insurer to make this offer.”Google+