27th January 2018
Based in Headingley, we sell and manage a lot of buy-to-let investment property therefore the recent research by Foundation Home Loans was most interesting. Their research has determined that almost threequarters of portfolio landlords have found it more difficult to secure a mortgage since regulatory changes imposing tougher applications were introduced last September. Since the new Prudential Regulation Authority (PRA) rules came in last year with tougher underwriting criteria a poll of 817 landlords found that 70% of UK landlords with five or more buy-to-let mortgages have found obtaining finance an issue.
We have seen the PRA changes slow down the process of securing a mortgage and the research seems to support this, along with two thirds of those who have 11 or more properties believing the range of mortgage products available to them will be reduced. In fact 28% said they believed the changes will make it more likely for their mortgage application to be rejected. I think this is a little negative, but time will tell.
A constriction in the supply of finance to the property market usually leads to a reduction in demand. This in turn results in a fall in prices. However, buy-to-let borrowing is increasingly being conducted through limited companies today (as much as anything to preserve the mortgage interest relief that is being scaled back for individual portfolios) and funding for limited companies, although more tightly controlled than pre-recession, is more readily available than it is for individuals. Analysis by Mortgages for Business, based on industry figures combined with its own, found 49% of all completions in the fourth quarter of 2017 were from limited companies. This is up from 30% reported in the same period of 2016. And the proportion of buy-to-let mortgages available to limited companies grew in the fourth quarter from 21% to just under 25% of all products – competition between lenders should result in some interesting products in the near future. Average interest rates are now at around 4.2%, higher than the 3.2% average across the whole market, but with the interest tax deductible to limited companies, this form of finance still makes buy-to-let investment affordable.
I believe we are going to see increasing demand from limited companies for buy-to-lets in 2018 and beyond, especially with groups of younger individuals and more established investors coming together, combining energy and drive with experience and capital. We have an interesting time ahead of us.