Busiest month underlines popularity of buy-to-let investment

One company saw six times the number compared to last year…

Busiest month underlines popularity of buy-to-let investment

The following article is provided by Paul Fryers, managing director at Zephyr Homeloans.

In February this year, Zephyr Homeloans approved six times the number of ‘decisions in principle’ for buy-to-let mortgages than it did during February 2021.

During the past year we’ve also seen a four-fold increase in full mortgage applications.

Overall, activity has risen considerably since the UK went into its first coronavirus pandemic lockdown on March 23, 2020.

Endurance of buy-to-let

In 2015 the announcement of a new, additional, 3% stamp duty rate for anyone buying a second home led to gloomy forecasts for the BTL industry.

There were similar predictions two years later, in 2017, when the government stopped landlords deducting the interest they paid on mortgages before paying tax.

The old system effectively provided higher-rate taxpayers with 40% relief on their BTL mortgage payments. Its replacement meant landlords instead received a flat-rate tax credit based on 20% of their mortgage interest.

During the pandemic, some industry voices predicted that emergency legislation temporarily banning evictions and introducing rent holidays would result in private landlords exiting the sector.

Some commentators are now warning that the government’s proposal to introduce an Energy Performance Certificate (EPC) ‘C’ rating by 2025 on all new properties will lead to an exodus.

Despite these concerns, people continue to apply for mortgages for BTL properties.

Small to larger portfolios

The high demand we’re seeing very much reflects trends in the private rental sector. 

Some landlords, particularly those with a modest number of properties are selling up. However, ‘professional’ investors, typically those with larger portfolios who have set up limited companies, are buying a stake in the market.

Reasons for the shift are complex, but include people choosing to invest in rental property to support lifestyle changes such as part-time working or perhaps leaving the workforce altogether.

These new landlords are no doubt also aware of the increases in capital appreciation in the property market, including in rental properties, during recent years.

They are also probably conscious that tenant demand for the UK’s five million private rental properties remains high.

Out with the old

Some landlords are considering disposing of older properties that do not meet the government’s new EPC requirements, but at the same time some are investing in more modern properties that meet the new criteria.

There also appears to be a geographical shift in the locations where landlords are buying, with many looking outside of London to the regions.

Recent data have shown that around 20% of all Zephyr deals relate to property in the North West and Yorkshire. 

All the signs so far during 2022 underline that, despite the increasing complexity of owning BTL property, bricks and mortar remain an attractive and popular investment.