Paragon figures highlight reduced landlord gearing and continuing caution

by: Edward Murray
  • 03/04/2017
  • 0
Paragon figures highlight reduced landlord gearing and continuing caution
Caution among landlords about the forthcoming changes to income tax relief has resulted in lower gearing across the market, according to Paragon Mortgages' PRS Trends Report for Q1 2017.

According to the research, gearing among landlords remained low in Q1 2017, with the average loan-to-value ratio decreasing by 2% to 35%.

Adele Turton, managing director of Plan A Mortgage Brokers, said: “I’ve got a lot of clients that are looking to incorporate personal into limited, due to the loss of mortgage interest tax relief, but they are worried that they will incorporate, absorb all of the costs of doing so and then the government will remove relief for limited companies as well.”

She added: “I think landlords are still hedging their bets and they are not convinced that the government will not then go after limited companies for buy to let.”

Looking to the future, John Heron (pictured), managing director of Paragon Mortgages, said he thought the trend to lower gearing would continue in the months ahead.

He said: “Average gearing is low and getting lower, and this long-term deleveraging 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.”

Since Q2 2012, average gearing has reduced from 42% and the Q1 2017 report found that 68% of landlords now have borrowings of less than half the value of their investment property portfolios.

The research said that on average, landlords spend 30% of their rental income on mortgage payments, with almost half (43%) in Q1 2017 saying they spend less than a quarter. It also identified the fact that 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.

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