The buy-to-let (BTL) market has had to put up with a lot recently, what with new rules and tax changes cropping up on a regular basis, and it's just had another one to adapt to. From the beginning of this month, lenders have been required to apply strict underwriting criteria to portfolio landlords when they're applying for a new BTL mortgage, and judging by activity in the sector in recent weeks, it looks as though the market is taking a step back to adjust.
Figures from our latest UK Mortgage Trends Treasury Report show that the number of available BTL mortgages has dipped by two in the last month to stand at 1,723, down from 1,725 in September. This may not seem significant, but it marks a clear change of direction; in recent months, availability has seen some dramatic increases, ramping up by almost 200 products in the last quarter, from 1,531 deals in June to last month's 1,725.
Indeed, availability stood at just 1,477 a year ago, so the last year has seen a general upwards trend, albeit with some fluctuations along the way. The fact that we've now had the first drop in availability in four months is therefore particularly notable, and suggests that providers are pausing for breath as they take stock of the latest rule changes.
At the same time, buy-to-let mortgage rates are beginning to edge up. Our data shows that, while the average BTL fixed mortgtage rate stood at a record low of 3.15% in September, and remained at that level when October's figures were calculated, it's since started to creep up, and at the time of writing stands at 3.17%.
This pattern can be seen across the majority of terms and loan-to-value (LTV) tiers as well. For example, the average two-year fixed BTL mortgage rate stood at 2.79% at the beginning of October, yet it's now risen to 2.82%, while the average three-year rate has risen from 3.15% to 3.20% over the same period. Only the average five-year fixed BTL rate remains unchanged at 3.43%, yet even then, it fell to 3.41% a week ago and has since edged back up.
Much of these latest increases could be attributed to rising base rate speculation and the resulting jump in SWAPs, in a similar way to how the residential market has been reacting. Our data recently revealed that, while average mortgage rates had hit fresh lows, they certainly weren't going to stay that way, with providers already raising rates in anticipation of a rate rise – and it seems the BTL market is following suit.
However, there are also the portfolio changes to consider, and this is undoubtedly having some kind of impact. While it's likely having the strongest effect on availability, it could also be impacting pricing activity, as providers become more cautious in their lending decisions as they adjust.
The changes mean that lenders now have to apply stricter affordability criteria to borrowers classed as portfolio landlords, i.e. those who have four or more rental properties. If that's you, you'll find that any future BTL mortgage application will take into account your entire portfolio, with it being viewed as a single entity.
This means you won't be assessed solely on the property in question, which in turn means it could be harder to secure finance, as if one property in your portfolio isn't performing that well, it could tarnish the rest of them.
The fact that no-one's quite sure how this will impact the market yet could go some way to explaining the recent shift in momentum. No longer are providers ramping up their product range and lowering rates in the process, but they're instead taking a step back as they assess the impact of the new rules, not to mention inflation and a possible base rate rise, on the lending environment.
It's therefore likely that this stagnation could persist while the market adjusts, but as with the residential market, it's also highly likely that the run of record low rates has come to an end.
Sam: 24th Oct 2017 10:42:00
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