Buy-to-let mortgage lending update for landlords

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With recent research revealing that the number of buy-to-let mortgage products on the market is at its highest since the credit crunch, we analyse what the lending landscape currently looks like for landlords. 

Although buy-to-let landlords might feel like the government has had a personal vendetta against them in recent years – with a range of tax and regulatory changes introduced to dampen the market – many haven’t been put off. Recent research by Moneyfacts found that the number of buy-to-let mortgage products on the market is at its highest level since October 2007, before the global financial crisis took hold, when there were 3,305 products on offer. Landlords can now pick from 2,162 buy-to-let mortgage products – a post-financial crisis high and a sign that investors are remaining committed to the market despite the challenges posed.

Nevertheless, despite the growing number of products on the market and the increasingly competitive rates being offered by lenders in the residential mortgage market, there is no indication that buy-to-let packages are falling in price. The data revealed that the average two-year fixed-rate buy-to-let mortgage rate has increased by 0.20% to 3.12% since September 2018, while the average five-year fixed rate has risen by 0.15% in the same period. Moneyfacts believes the increase could be a consequence of lenders placing slightly more risk on their buy-to-let products thanks to the uncertainty caused by Brexit. 

Buy-to-let mortgage numbers fall but remortgaging thrives

The latest data from UK Finance found that there were 5,500 new buy-to-let home purchase mortgages completed in January 2019, down 1.8% year-on-year. However, the rate of decline was less pronounced than in January 2018, when there was a 5.1% year-on-year fall in the number of buy-to-let home purchases, suggesting that the market is now holding steadier. The number of buy-to-let remortgages paints a more promising picture, with people opting to stay in the market rather than selling up. During 2018 as a whole, 169,100 new buy-to-let remortgages were completed, 11.2% greater than in 2017.

In January 2019, the data shows that there were 15,800 new remortgages. While this was down 4.2% on the year before, it was comfortably up on November and December 2018, and the report also noted that January 2018 was an especially strong month for buy-to-let remortgages, with the highest number on record.

High-street lender removes restrictions on buy-to-let landlords

NatWest recently revealed that it was ending its lending block on landlords renting to those in receipt of housing benefit. The change in policy will cover all UK brands within the Royal Bank of Scotland (RBS) group, including NatWest, RBS and Ulster Bank, and comes after NatWest carried out an extensive three-month long review into its policies. This followed national protests at branches and pressure from the Residential Landlords Association (RLA) and Shelter to remove the ‘No DSS’ restrictions when lending to buy-to-let landlords. According to the most recent RLA figures, two thirds of major buy-to-let mortgage lenders don’t allow landlords to rent property to tenants receiving housing benefit.

“I am pleased that we are introducing these changes and extending our policy to support smaller landlords in this segment of the market,” Ian McLaughlin, managing director of home buying and ownership at NatWest, said.

An increase in incorporation

Meanwhile, the number of portfolio landlords moving to limited company status to reduce their exposure to higher levels of tax is on the rise, according to research from Precise Mortgages. It found that 64% of landlords with more than four properties who plan to purchase this year will use limited company status, in comparison to just 21% who intend to buy as individuals. Across the market as a whole, some 44% of landlords looking to buy will use limited company status to do so, but this drops to 17% among landlords with one to three properties. The research also highlighted that more than six out of 10 landlords who are planning to fund new purchases this year will use buy-to-let mortgages. Despite this, 73% believe lending criteria and portfolio application process changes introduced by the Prudential Regulation Authority in 2017 are making it more difficult to secure mortgages, with 57% saying the changes at the very least slow the application process.

The rising popularity of landlords buying with limited company status is attributed to the phasing out of mortgage interest tax relief – set to be completed by April 2020 – which doesn’t apply to landlords operating as a business rather than an individual. Shawbrook Bank highlighted this stark change in mentality in November 2018, when it reported that its buy-to-let borrowers were increasingly transferring properties to limited companies to offset new tax rules in the sector. The number of buy-to-let mortgages completed by individual landlords fell from 68% in the first half of 2015 to 34% in the same period of 2018, while the number being completed by limited companies doubled from 32% to 64% in the same period. 

Read more in issue 44 of Li Magazine