Buy-to-let accounted for 13.8 per cent of all lending in Q2 2017, according to data released by UK Finance. This is a substantial reduction from 18 per cent two years ago and shows that the Government’s measures to level the playing field between homeowners and BTL investors are working.
Despite sensationalist reporting in The Telegraph claiming that “the rapidly shrinking buy-to-let market is driving lenders to a mortgage price war as they compete for dwindling demand from borrowers”, I do not think the sector’s popularity is still massively on the decline; nor is a rate war going on. Rather, lending dropped off and has now levelled out. For the time being.
Since the introduction of the higher rate of stamp duty, BTL lending has reached a plateau of an average of £2.8bn a month, compared to the £3.2bn a month seen in the 14 months beforehand. Of course, the lower lending average is not all down to the stamp duty change but that was certainly a pivotal moment. I think the changes to income tax relief for landlords and the new PRA guidelines will have far greater ramifications.
They are already changing the dynamic of the BTL market: fewer would-be landlords are enquiring about buying property; we also know of landlords who are downsizing their portfolios or selling up altogether.
The so-called rate war is a bit misleading, too. Sure, rates have reduced. Mortgage Brain reports the cost of two-year fixed rates, at both 60 per cent and 70 per cent LTV, is 4 per cent lower than in May.
However, data from our BTL mortgage sourcing tool, Mortgage Flow, shows these rates are only 1.4 per cent lower (a fall of just 0.04 per cent in pricing). Crucially, the difference may be in how the product information is captured.
Also, lenders are making up for lost margins in arrangement fees. There has been an increase in the use of percentage-based fees and a drop in the use of flat- and fee-free products, which suggests lenders could be attempting to regain some of their lost margins in other ways: a cost that still ends up in the borrower’s pocket.
We will not truly know the direction of BTL lending until the effects of the new rules on lending to portfolio landlords manifest themselves. However, if we continue as we are until the end of the year, BTL lending will total around £33bn. That is a very long way from the paltry £8.6bn of just eight years ago.
In the meantime, there are still opportunities out there for investors, lenders and brokers. It will simply require an adjustment of mindset to attain them.
David Whittaker is chief executive of Mortgages for Business