Despite critics’ claims that slowing house price rises and an increase in the cost of borrowing will cause buy-to-let investors to pull out of the market en masse, a major study from Mortgage Trust has revealed that 9 out of 10 landlords would not consider selling their investment property when confronted by rising interest rates. When asked how they were responding to the Monetary Policy Committee’s action on rates, 49% of landlords were sitting tight, while 22% were looking to change their mortgage. A significant minority (16%) were increasing rents to compensate for the higher financing costs. Only 14% were planning to swap variable rate mortgages for fixed rate ones. (see fig 1)
Austin Jelfs, Head of Sales and Marketing at Mortgage Trust said: ‘Our findings echo ARLA’s report earlier this year and demonstrate that confidence in the market remains strong. Landlords are investing in buy-to-let for the long term and are less swayed by short-term considerations. The fact that only 14% are looking to switch to a fixed rate mortgage indicates that landlords believe interest rates are close to reaching their peak.’
Overall borrowing levels remain comfortable, further underpinning the market. On average, the loan-to-value in landlords’ portfolios is 48.5%, while a mere 14% of landlords have borrowings over 75% of the value of their properties. This indicates that buy-to-let investors are a lot less vulnerable to an increase in the cost of finance than many of the doom-mongers would have us believe (see fig 2). Low gearing levels also indicate that landlords have plenty of equity for further expansion. Indeed landlords expect to grow their portfolios by an average of 14% in the next 12 months.
Jelfs adds: ‘The very low levels of borrowing in the private rented sector helps to explain why landlords are so sanguine about the current less favourable interest rate environment.’
Austin Jelfs of Mortgage Trust concludes: ‘The buy-to-let market is much stronger than many assume. Today’s buy-to-let landlords are investing for the long term and understand that market fluctuation is part of any investment strategy. Landlord confidence is built on their understanding of the property market and its expected return to stable levels of inflation and growing rental demand. Very low gearing levels and far better credit performance than the owner-occupier sector demonstrate the robust nature of the buy-to-let market.’