In a move that will be of interest to all buy to let landlords, the Council of Mortgage Lenders (CML) has elected to downgrade its previous forecast in for the market. It stated that some view the recent tax changes for landlords and tighter lending regulations over lending were the primary reasons for the change. The CML had previously predicted that the buy to let market in the UK would be valued at as much as £38 billion in the current financial year. Their adjusted figure now puts this in the region of £35 billion. Many private landlords have seen the state of the market alter in the last twelve months and won’t be surprised by a lower level of lending now being predicted for the remainder of 2017-18.
The data that was gathered by the CML comes from a series of surveys with their members reporting on the take-up of buy to let mortgages across the country. These are taken into account alongside other market indicators, such as some reports in the last quarter which indicated that average house prices were in the south east of England, including those in the Portsmouth area, where starting to drop for the first time in years. According to the mortgage lending trade association, buy to let lending had driven the mortgage market for a number of years until recently. Indeed, the CML's report notes that in the twelve months to April 2017, it was first-time owner occupiers who were beginning to drive the mortgage market. Their survey indicated that this group had seen an upturn of some eight per cent in the previous year, mirroring the corresponding drop in people taking up buy to let mortgages somewhat.
Of course, such reports do not necessarily mean that landlords are moving out of the buy to let market en masse. However, it does appear to indicate that newcomers are becoming increasingly wary of committing themselves to years of servicing a mortgage from their rental income. The number of landlords that took up new buy to let mortgages between April 2016 and March 2017 was in the region of 5,300, according to the report. This stands in stark contrast to the corresponding figure for the previous reporting year. During 2015-16, some 10,300 landlords entered into mortgage arrangements with lenders the council represents. Of course, these figures do not include cash buyers and only relate to those in the private landlord marketplace who require mortgage financing.
Launching their report, the CML took the opportunity to lobby government, claiming that the downward pressure on the lending market had implications for the regulators. “We would emphasise the case for avoiding further changes,” the report reads. It then calls for a cessation in alterations to both the tax system and the regulatory framework currently in operation, “until the effect of those already in place have been properly assessed. “
Although buy to let market confidence may be impacted by the overall state of the housing market, few landlords with mortgages doubt that the rules now in place for new lending by the Prudential Regulation Authority (PRA) have had an impact. Since January 2017, the PRA has made sure that mortgage lenders apply what is known as ‘stress tests’ on new lending proposals. Essentially, these are designed to make sure that mortgage debts do not become toxic, as was seen during the global financial crisis. However, such tests come with a cost and these may be putting some potential landlords off or creating a brake on existing landlords from applying for new mortgages.
In other reports put together by some of the UK’s leading property agents, the buy to let market has also been significantly hit by the number of overseas investors falling recently. According to data produced in July 2017, buy to let owners from outside of the UK now stands at its lowest level for a ten-year period. In 2010, overseas buy to let landlords accounted for over a quarter of the marketplace. It is a little over five percent today. Despite this fall in overseas investors, some UK-based landlords will see this as a drop in competition, viewing the trend as representing nothing more than an opportunity to invest in a less crowded market place.