Brokers weigh in
Bluestone Mortgages recently announced its withdrawal from the buy-to-let market to focus on the growing owner-occupied residential market.
As a result, Mortgage Introducer reached out to brokers in the buy-to-let space to understand the current outlook of the market.
Buy-to-let market struggling
Christian Duncan, managing director at Manchester Mortgage Centre, said Bluestone Mortgages took the decision to leave the buy-to-let market as it only made up a small percentage of its business.
“Having placed a lot of buy-to-let clients with Bluestone, they offered a very unique set of criteria that will be missed for sure,” he said.
The buy-to-let market, Duncan said, is suffering as a result of rate increases, which is something not expected to improve in the short term. He believes the UK property market needs buy-to-let investors to provide affordable housing, but this is becoming a less attractive investment as rates increase.
Portfolio landlords in particular, he added, are finding lenders’ criteria and stress testing difficult.
“It would be nice to see lender product fees capped when it comes to buy-to-let products to ensure it is a level playing field; certain lenders are now offering products with 5% product fees in a bid to help landlords pass stress testing,” Duncan said.
Meanwhile, Darryl Dhoffer, mortgage expert at The Mortgage Expert, said even Bluestone Mortgages would concede it was never a major player in the buy-to-let space, so it is not a significant loss.
“On one hand, the buy-to-let sector has never been better for the seasoned property investor with rising rents, and bigger yields, but equally, mortgages required to finance these deals have come under extreme pressures, with many deals collapsing, or not proceeding,” he added.
Possible ideas to stimulate this sector, Dhoffer said, include reductions in stamp duty for buy-to-let investors, introducing tax breaks for landlords, and reviewing ICR calculations, including scrapping basic rate/high rate tax payer differing rates, temporarily.
Enemy of the state and people
Clive Read (pictured left), owner at Goldmanread, said buy-to-let landlords have become the favourite enemy of the people - for both politicians and the renting public.
“As a result of tax, regulatory and interest rate changes, buy-to-let landlords are exiting the market in droves,” he added.
This means there is a lack of properties on the market, Read said, with a recent report showing there are 20 applicants for every one rental property.
Read believes there is little lenders can do to reverse this situation given the “regulatory strait jacket” imposed on them when it comes to buy-to-let lending.
“The changes must come from the government who have to face up to the situation that their legislation has caused,” he said.
In order to rectify the situation, Read said, the government needs to reverse the tax changes on buy-to-let and actively encourage, at the very least, those still in the market to remain.
James Bull (pictured right), mortgage broker at JB Mortgages, said buy-to-let mortgage affordability is calculated by the amount of rent a property will achieve applied to a formula that will calculate if this will cover mortgage payments.
“Low mortgage interest rates over the last few years have meant this was easily achievable and it was very easy to obtain the mortgage required,” he said.
However, Bull added that now interest rates have increased, so has the rent needed to cover the mortgage payments.
This means, Bull said, higher deposits are required in order to proceed with buy-to-let purchases.
“At the end of the day, a buy-to-let property is an investment, and if the returns do not stack up for landlords due to expensive mortgages, then of course they will most likely put any purchases on hold, and this is what we are seeing in the market,” he said.
How is the buy-to-let market fairing at present? Let us know in the comment section below.
