Landlords taking action to mitigate higher tax costs will lead to a lower level of buy-to-let remortgage transactions, according Paragon’s PRS Trends Report for Q1 2019.
The lender’s quarterly survey, which tracks the experience of more than 200 landlords, shows that while landlords remain engaged in the sector, they are now prioritising measures to bolster financial strength over portfolio expansion.
The survey shows how landlords have scaled back their buying intentions, reduced their reliance on mortgage debt and improved affordability by spending less of their rental income on mortgage payments.
For example, the proportion of landlords looking to purchase property has fallen from between 15 and 20 per cent before the announcement of tax and regulatory changes in 2015 to just 7 to 10 per cent today.
Average portfolio gearing – which measures the proportion of debt finance relative to a portfolio’s overall value – has fallen from 40 per cent in 2014 to 33 per cent today. Landlords who have three or more properties borrow 36 per cent of their portfolio value on average.
Meanwhile mortgage costs as a proportion of rental income are down from 30 per cent at the beginning of 2017 to 27 per cent, also aided by landlords remortgaging onto lower interest rate and longer-term fixed mortgage deals.
Paragon director of mortgages John Heron (pictured) says: “The shift in focus from portfolio expansion to financial strength has driven a surge in BTL remortgaging, with lower interest rates and longer initial fixed periods helping landlords reduce finance costs and lock in greater certainty.
“However, it also extends the product maturity cycle, guaranteeing a reduction in the scale of opportunity to refinance BTL mortgage deals over the next few years.”