The obvious focus has been to try to ensure lenders in this market are stress-testing their borrowers and the loans they take out at higher levels. The accusation appears to be that, prior to this, some lenders were happy to accept lower interest cover ratios than the Prudential Regulation Authority (PRA) would like.
The argument, however, could be made that measures already announced by the then Chancellor, George Osborne, were already going a long way to putting the dampeners on the buy-to-let market, certainly in terms of purchase activity. While immediately prior to the increase in Stamp Duty charges for the purchase of additional properties being introduced at the end of March this year, activity was understandably high, since then it’s fair to say that landlords have not exactly been in a rush to add to their portfolios. Add in the uncertainty generated by the EU referendum vote, and we might suggest that this dampened buy-to-let purchase activity even further.
In essence, even without the changes to buy-to-let underwriting, the buy-to-let market has been in a subdued state for a number of months. A further question has to be asked, and that is why the government and the regulators would want this? Well, of course, the idea behind this was to bolster first-time buyer activity, given that landlords were seen as the enemy of first-timers and, we were told, measures to curb buy to let would bolster the opportunities for first-time buyers.
Has this materialised? Well, not really, because what this argument failed to understand is that the fundamental problems afflicting potential first-timers would remain regardless of negative measures aimed at landlords? It’s been said before, but worth repeating, that making it less attractive for landlords to purchase was never going to mean that a first-time buyer could save the deposit required for their first home.
We’ve therefore seen that as buy-to-let activity has dropped off, there has been no real boost to first-time buyer transactions. Instead, as the Council of Mortgage Lenders recently pointed out, the whole market appears ‘subdued’ at the moment.
The traditional summer downturn has been and gone, but many believe it was more pronounced than in recent years. Noticeably, a number of conveyancing bodies recently urged the government to back-pedal on its anti-buy-to-let measures, particularly on Stamp Duty – however this was before the PRA made its announcement and there was no watering-down visible from the content of CP11/16. Add into this the announcement that Help to Buy 2 will close at the end of the year, and you could be forgiven for thinking that 2017 is not likely to set the world on fire in terms of housing transactions and mortgage activity.
One would hope that during the rest of this parliament we have a housing strategy which works across all parts of the market – at the moment this doesn’t seem the case with the result that the measures we’ve seen appear to be impacting negatively on all. How long this will be allowed to continue is anyone’s guess, but what we continue to need is joined-up thinking otherwise the likelihood of a noticeable pick-up in activity will simply move further away.