Record Number of Buy-to-Lets Purchased With Cash
According to data from lettings agent Countrywide and the Council of Mortgage Lenders, a record number of landlords are choosing to purchase their buy-to-let investments with cash rather than through the use of mortgages. More than six out of ten properties purchased last month with the intention of letting were bought debt-free.
It seems easy to link these figures to recent government reforms. Tax changes, set to begin rolling out in April and due to be fully-implemented by 2020, are set to make it harder for many landlords to offset their mortgage-related expenses against their taxable profit. In the most severe cases, this could even turn profitable mortgaged properties into loss-makers. Another reasonably obvious potential factor is the recent decision by the Bank of England to implement tougher lending rules.
Countrywide does indeed believe that these changes to tax and lending rules played a role, but does not believe the decreased uptake of buy-to-let mortgages is wholly down to recent changes by any means. The company has been keeping records for ten years, and says that the proportion of investors choosing to buy with cash has been steadily rising over that time. When Countrywide’s index first began in 2007, 41% of landlords buying new investment properties offered cash payment in full. The most recent figure is 61%, and increase of almost half.
One key cause highlighted by Countrywide was an accumulation of wealth in the sector as a result of fast-growing property prices. With landlords selling a property once every 17 years on average, strong capital growth has had very tangible benefits for investors over time and has left them in a better position to buy new properties without the need to borrow.
Separate figures from the Council for Mortgage Lenders (CML) also provide insight into the decreasing uptake of buy-to-let mortgages. In November of last year, the CML’s figures show, the number of buy-to-let mortgages being granted was down by roughly a third year-on-year. This is a far bigger decrease than the 6.4% drop in owner-occupier mortgages over the same period, and a very different story from the 8% increase in mortgages for first-time buyers. Between January and November last year, the number of buy-to-let mortgages purchased was 95,700 compared to 107,200 in the same period of 2015 – a decrease of 11%.
Lenders are now responding to this trend with better deals and a wider variety of offerings for buy-to-let investors. Arguably the most notable new product to hit the market so far in an attempt to stimulate borrowing activity from landlords is a new 10-year buy-to-let mortgage from Barclays which is fixed at a rate of 2.99%. This offering attracted no small amount of attention, not least because it was described by the director of one mortgage broker as an “unheard of” deal.
For more information on buy-to-let property investments, please contact Hopwood House.