Buy-to-let Mortgages - UK - March 2015
“For the majority of people who will benefit from the pensions freedoms, a buy-to-let investment is unlikely to be either a viable or an enticing investment option. Even ignoring funding complications, the perceived hassle of being a landlord puts many off. As Mintel’s data reveals, among those already retired and who are non-landlords, 94% would not consider investing in property in the future.”
– Sean Song, Research Analyst – Financial Services
This report looks at the following areas:
- The calls for regulation and the impact of the European Mortgage Credit Directive
- Impact of pensions reform in April 2015
- England’s shifting housing dynamics
The buy-to-let market has grown in terms of values advanced in 2014. This reflects strong, sustained rental demand, and confidence in the property market. In turn, this has led to an optimistic outlook from lenders in the market, who are backing the buy-to-let market to continue its growth into 2015. In light of this, there has been a wave of major competitors entering the market, which has put downward pressure on mortgage rates.
In turn, these low rates have made buy-to-let even more attractive to many customers, especially when considering how low current saving rates are. There has also been speculation as to whether the market will be impacted by the pension freedoms coming into effect in April 2015, which will allow pensioners more flexibility with how they access their pension pots.
Understanding who these potential investors are is crucial, as is helping them understand the buy-to-let market. This report examines attitudes towards property investment among both non-landlords and existing landlords, and also looks at likeliness to invest. Analysis of key market drivers, such as housing stock, arrear rates, and effective mortgage rates, is also included. The impact of regulatory changes, including the European Mortgage Credit Directive, and pension freedoms are analysed, as is the risk of further regulatory changes.
The buy-to-let market will continue to flourish outside the wider mortgage regulation framework into 2015, as rental demand increases, and house prices remain healthy. Both lenders and landlords are optimistic about the market’s prospects and this is reflected in lenders’ positive quarterly outlook and the likeliness of current landlords to expand their portfolios.
As the market expands, high street banks can expect to cater for the first-time buyers, while existing landlords may be in need of more specialist brokers who can factor in more complex portfolios which may include HMOs, especially as these properties yield higher margins. As banks may be hesitant to dip their feet into the specialist and commercial buy-to-let lending due to time and costs associated with hiring specialist underwriters and upgrading systems, there will be room for expansion for smaller and more specialist lenders.
When the interest rate increases, first-time landlords and existing landlords will become more wary of the need to gear their investments in the best way possible. Longer term fixed-rate products are likely to appeal to customers, particularly those who may have a more modest portfolio size.
The buy-to-let market should also take note of the regulations that have been imposed on the wider mortgage market. Although currently only accounting for a roughly 18-20% of the wider market, buy-to-let’s share is growing, and will only attract more and more attention as the government assesses the risk buy-to-let lending may have on financial stability in general. In keeping with this, the industry should aim to implement long-term strategies which focus on stabilizing certain factors such as rental cover, so as to avoid state intervention.
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