Borrowing in the buy-to-let market remained stable during Q3 2019 despite an overall slowdown in mortgage activity during the period, Paragon said.
According to Paragon’s latest Financial Adviser Confidence Tracking (FACT) report based on interviews with 201 mortgage intermediaries, the average number of mortgages introduced per office in Q3 was 21.9, down three per cent from 22.5 in the second quarter and the lowest figures since Q2 2017.
The average number of mortgages introduced per adviser also fell, down from 7.9 to 7.4.
Despite this slowdown, the buy-to-let market has remained relatively stable since a decline in 2016 and comprised 17 per cent of mortgages introduced in the quarter, up two per cent from the 15 per cent seen in Q2 2019.
Remortgages driving business
Remortgaging was the main type of borrowing among homeowners, accounting for 46 per cent of mortgages introduced in Q3, maintaining the disparity that has been widening over the last five years.
Second home buyers accounted for 18 per cent of new business, down from 19 per cent in the previous quarter, and first-time buyers fell from 18 per cent to 16 per cent.
In terms of buy-to-let business completed in Q3 2019, first-time landlords grew from 11 per cent to 13 per cent and remortgaging climbed from 52 per cent to 55 per cent.
However, the proportion of landlords raising finance for portfolio extension was smaller, down from 23 per cent of business in the second quarter to 20 per cent.
Intermediaries said they expected to see a two per cent pick-up in overall business over the next 12 months and a one per cent increase in buy-to-let.
Furthermore, the FACT Index score, which records advisers’ overall confidence in the mortgage market, was 97.8 for Q3, down 11.2 compared with six months ago and the lowest score recorded since Q1 2017.
John Heron, director of mortgages at Paragon, said: “After a number of years of instability and negative sentiment in the buy-to-let market, it’s encouraging to see mortgage intermediaries forecasting increased buy-to-let business over the next 12 months.
“However, the market overall has been constrained by the current Brexit uncertainty and it remains difficult to see exactly when this will end.”
Weak sterling supports overseas landlords
The proportion of homes in the UK let by overseas based landlords rose to 11 per cent during the first 10 months of 2019, up from a record low of seven per cent seen during the same period last year.
According to the Hamptons Lettings Index, this was the first year-on-year increase since its records began in 2010 when 14 per cent of homes were let by non-UK based landlords.
The increase has mainly been driven by areas in the South, with the East of England and London recording the biggest rise in the proportion of homes let by overseas landlords.
The proportion of homes let by non-UK based investors in London and the East rose eight per cent year-on-year. The South East and the North East followed, both recording a seven per cent year-on-year rise.
London had the highest proportion of homes let by overseas based landlords at 18 per cent, up from 10 per cent during the first 10 months of 2018. Meanwhile Wales had the lowest proportion of homes let by non-UK landlords, down two per cent, and was the only region to record a fall compared with 2018.
The depreciation of sterling is one of the main reasons why the proportion of homes let by overseas based landlords has risen, and according to Hamptons, the pound’s slide has been able to pay off the additional three per cent stamp duty surcharge payable on second home purchases.
The average home in UK cost £53,065 or 23 per cent less than it did in 2014 for a US dollar buyer, with a stamp duty bill coming to £9,140. In London, the average property would save a US dollar buyer £107,030 compared with 2014.
Western Europeans made up the largest group of overseas landlords, with 33 per cent based there so far this year. However, since 2014, North American landlords have increased the most.
The proportion of homes let by international landlords based in North America has risen to 14 per cent so far this year, 1.9 per cent higher than in 2014.
Landlords based in Eastern Europe, Africa and Oceania also recorded increases while the proportion of overseas landlords from the Middle East fell the most since 2014. Middle Eastern investors made up nine per cent of all overseas based landlords in UK, 2.4 per cent fewer than in 2014.
The average rent of a newly let property in UK rose to £999pcm in October 2019, 2.2 per cent higher than the same period last year. Rising rents in the South drove rental growth – average rents increased 3.9 per cent in the South East, 3.8 per cent in the East and three per cent in the South West.
London was behind, with the average rent rising to £1,763pcm, up 2.8 per cent year-on-year. Meanwhile the North was the only region to record falling rents with declines of 0.6 per cent, the first annual fall since May 2018.
Aneisha Beveridge, head of research at Hamptons International, said: “The proportion of homes let by overseas based landlords rose for the first time in more than nine years.
“Sterling’s depreciation has made investment property in UK more attractive to international investors.”