CML warns of long-term BTL slump

Latest data released by the body showed the number of loans taken out to buy BTL property in August was 38.7% below the same month last year.

In total 6,500 new loans were sold to BTL investors to buy houses in August, up 500 on July but down 4,100 on August last year.

At the same time 12,800 remortgages were sold, which was up 4.1% on the previous month and 11.3% on last year, when 11,500 BTL loans were re-mortgaged.

CML said almost two thirds of buy-to-let loans were remortgages rather than house purchases in August, which meant the market had continued on the flat trajectory it embarked on in April.

CML explained the effects of the government’s changes to Stamp Duty rules on 1 April are still being borne out in current market activity.

The government said it introduced a 3% surcharge on second homes in order to protect home buyers. It also published plans to cut landlord tax relief to the basic rate from next year. At present landlords can claim up to 45% in BTL relief.

In addition, the Prudential Regulation Authority (PRA) is due to phase in stricter controls on affordability on BTL loans from January.

CML director general Paul Smee said: “Buy-to-let continues to operate at lower levels five months after the stamp duty change on second properties.

“This appears to be a long-term trend, and with lenders potentially tightening affordability checks ahead of the tax changes in April 2017, activity on the buy-to-let house purchase side may well remain at current levels.”
Mixed picture

The National Association of Commercial Finance Brokers said the signals coming from the BTL market were “mixed”.

“Compared to last year, buy-to-let loan levels remain sharply down – understandably so given the punitive tax changes and volatility around Brexit. But we are beginning to see signs of a slight recovery in demand,” said CEO Adam Tyler.

He said the slight rise in loan numbers in the last month (1,000 in total) was a signal landlords and property investors were beginning to regroup.

“You sense, and this is definitely the feeling we get from our own brokers around the UK, that property investors have started to adjust to the new stamp duty regime.“ he said.

Indeed, according to Rightmove’s latest trends tracker, enquiries for buy-to-let properties have increased 30% since May, following an initial dip in activity after the changes to Stamp Duty took effect.

Tyler said while many investors seem to be exiting the market, others may look to make the most of the current low interest rate environment.

Mortgages for Business managing director David Whittaker agreed. He said investors may also seek to take advantage of current underwriting rules, which could lead to a rise in activity towards the end of the year.

In the longer-term the market will experience a change, with more investors going down the limited company route, he said.

“It could be too early to say for sure, but the year-on-year slowdown in buy to let lending could be having George Osborne’s desired effect of levelling the playing field for first-time buyers.

“What we do know for sure is that buy to let purchases by landlords using limited companies is fast becoming the norm ahead of changes to tax relief and the new PRA guidelines will only push more investors down this route,” Whittaker said.

In contrast to BTL, house purchases bounced back in August after a Brexit-induced dip in July.

Mortgage lending for homeownership climbed 14% in the month, leading to lending levels at 11% higher than a year ago, the CML figures showed.