What can we expect from the 2018 BTL re-financing rush? – Landbay

by: John Goodall, CEO and Co-Founder of Landbay
  • 09/01/2018
  • 0
The 2017 buy-to-let market has been relatively subdued, with many people seeing the recent introduction of market regulation and government legislation as the reasons for the drop in buy-to-let mortgage applications.

From stricter PRA guidelines to a reduction in mortgage tax relief, many landlords have now been forced to think twice about expanding their portfolio due to the myriad of changes. However, as we look to the New Year, we can expect to see a jump-start in buy-to-let mortgage activity in Q1 as the wave of borrowers who purchased properties in Q1 2016 look to re-finance.


Stamp duty driving the rush


The number of buy-to-let mortgages taken out for the purchase of new properties in Q1 of 2016 totalled over 49,000. In 2017, this figure wasn’t achieved until eight months into the year. The quarter was something of an anomaly, a period where activity was 2.5 times more than normal. One of the most influential reasons for this jump was the stamp duty surcharge for second properties, introduced in April 2016. Launched in an apparent effort to combat the relentless surge in house prices, the added 3% created a stampede in demand as buyers rushed to complete their applications before the new legislation came into effect.

As a result, March 2016 saw an intensely active mortgage market. According to the CML, gross mortgage lending hitting £25bn, around £4 to £5 bn more than would otherwise have been the case. A large percentage of borrowers who took advantage of this window of opportunity did so on 2-year fixed rate terms, so the first half of 2018 is set to see a surge in remortgage activity as those mortgages reach maturity.


Five-year, fixed rates raging


Meanwhile, five-year, fixed rate products have risen in popularity, largely as a result of the new PRA guidelines, which focus on affordability. As of January 2017, the PRA introduced stricter rules of affordability testing for two-year fixed rate products, meaning that to qualify for a mortgage under the latter terms, borrowers must be able to afford the interest at a percentage greater than the rate offered. For many landlords, the costs incurred as a result of the rising interest rates and reduction in mortgage tax relief mean that they simply cannot afford their mortgage under these terms.

However, affordability testing does not include applications under five-year terms, so landlords are able to borrow more with this arguably more attractive option. As a result, 2018, is expected to bring a greater number of switch overs to the five-year alternative.


Mortgage prisoners


One question arising from the new rules, is what will happen to the so-called ‘mortgage prisoners’, who do not meet the latest PRA criteria changes, and will be unable to refinance to another lender. With the increasing pressure on costs, landlords in this bracket, especially in the low-yielding, South-East, are most likely to feel the squeeze and face difficult questions about their business in the buy-to-let sector.

For brokers and lenders, 2017 has been a year of transition, with new regulations and tighter affordability standards creating a new foundation for the buy-to-let market. Both parties must ensure that their systems are up to date, and primed to receive the increase in borrower applications expected in the New Year.

For lenders in particular, capabilities in origination and efficient processes, backed by the intelligence and speed of their technology, are essential to ensure that they remain ahead of the application whirlwind until the buy-to-let sector re-adjusts to the new normal.

There are 0 Comment(s)

You may also be interested in


Keep up-to-date with all the breaking bridging and short-term lending news and analysis, from regulatory changes to product innovation and inside market knowledge. Take a look at our broker and lender case studies showing short-term finance in practice.


Find all the news, opinion and analysis for property finance brokers specialising in commercial and semi-commercial mortgages, alternative and development finance for commercial investments in residential projects.

Second charge

Stay up-to-date with the latest news, analysis and opinion on the secured loan market as it evolves into a mainstream finance option following European regulation on 21 March 2016.

Complex buy-to-let

Whether it’s a complicated asset or a complex customer, you’ll find out all the breaking buy-to-let news in this section. From limited companies to portfolio landlords, student lets to a House in Multiple Occupation, we’ve got all bases covered with our up-to-the-minute news, analysis and opinion.

Mortgage Solutions

Find all the breaking news, analysis and industry comment on Specialist Lending Solutions' sister site, Mortgage Solutions
Read previous post:
pound coins
Compensation net widens for Irish Republic tracker scandal-hit borrowers

Irish mortgage borrowers who took out tracker mortgages before 2006 have been included in the central bank’s review of the...