CML: Borrowing up, but buy-to-let falters

John Hewitt Jones

October 12, 2016

Council of Mortgage Lenders

Borrowing for house purchase hit £12.2bn in August – but buy-to-let lending remained substantially down, figures published by the Council of Mortgage Lenders show.

The data shows a month-on-month increase in homeloans of 14% and a year-on-year increase of 11%. In volume buyers took out 66,000 loans – up 13% on July and 24% on August last year.

However, landlords only borrowed £3bn, representing a decrease of 12% year-on-year. Gross buy-to-let lending remained substantially down on year earlier levels, and nearly two thirds of buy-to-let loans were remortgages rather than house purchase.

Landlords lose fight against buy-to-let tax changes

Paul Smee, director general of the CML, said: “House purchase activity bounced back from a dip in July, reflecting resilience in first-time buyer activity. Mortgage rates remain at or close to historic lows, and the re-pricing of mortgages following August’s base rate cut should help to underpin a continuing, strong appetite for home-ownership over the coming months.”

“Buy-to-let by contrast continues to operate at lower levels five months after the stamp duty change on second properties. This appears to be a long-term trend, and with lenders potentially tightening affordability checks ahead of the tax changes in April 2017, activity on the buy-to-let house purchase side may well remain at current levels.”

First-time buyers borrowed £5.1bn, up 12% month-on-month and 19% year-on-year.

Homemovers borrowed £7.1bn, up 15% on July and 3% compared to a year ago. This represented 34,200 loans, up 14% month-on-month and 2% on August 2015.

Remortgage activity totalled £5.9bn, down 2% on July but up 41% compared to a year ago. This came to 34,900 loans, up 4% month-on-month and 40% compared to a year ago.

Charles Haresnape, group managing director, Mortgages, at Aldermore, said: “The 13% spike in first-time buyer borrowing compared to July is encouraging, and chimes with research Aldermore conducted both directly before and after the referendum that showed first-time buyer confidence hadn’t been affected by the referendum vote. Just over a million first-time buyers are planning to buy their first property in the next 12 months, but difficulties in raising a deposit are likely to continue, particularly with the closing of the Help to Buy: Mortgage Guarantee, as many lenders are likely to move away from the 95% LTV space.

“There is clearly a great deal for demand for 95% products, but the number on the market has been steadily falling over the past 10 years, which will only make the dream of property ownership that bit more difficult for many.”

Andrew McPhillips, chief economist at Yorkshire Building Society, said it was “certainly positive that mortgage lending to first-time buyers is increasing”.

But he added: “Affordability is still a significant issue for those looking to buy their first home. Increasing house prices are limiting the number of people who are able to afford a property and consequently pushing up the average age of first-time buyers. Despite mortgage interest rates being so low, those who are able to buy their first home are having to take on more debt in order to be able to do so, and are spending a greater proportion of their income in return for a lower amount of equity in their property.”

David Copland, director at TMA Mortgage Club, said: “Remortgaging activity is up 4% month-on-month and up 40% compared to a year ago. Savvy homeowners are finally taking full advantage of depressed interest rates by switching mortgages.”

And he added: “Underlying these encouraging figures are advisers directing customers to the most competitive deals as they come to the end of their current arrangement. Advisers have also been proactively contacting clients that are on SVR’s and advising them on the best mortgage deals in the market place, which has further acted as a key driver to some of the remortgaging activity we are currently seeing. These are encouraging statistics with the size of the re-financing market masked by lack of published data on product transfers.”

John Phillips, group operations director of Spicer Haart and Just Mortgages, said the figures highlighted the continued resilience of the housing market and suggested that previous Brexit fears of market contagion had been somewhat overdone.

“These figures imply that the Bank’s move to help stimulate the economy have clearly helped to improve sentiment,” he said. “In addition, the continued shortage of properties has supported house prices while strong market fundamentals have continued to underpin the housing market.”

David Brown, chief executive of Marsh & Parsons, said: “August’s figures from the CML present a picture of a return to normality following the UK’s vote to leave the EU, with homeowner lending up year-on-year and from the previous month. Despite the many uncertainties that still surround which form of Brexit the country will take, for many, the dust has settled and property remains a safe bet.”

Adam Tyler, chief executive at the National Association of Commercial Finance Brokers, said: “There are mixed signals surrounding buy-to-let. Compared to last year, buy-to-let loan levels remain sharply down – understandably so given the punitive tax changes and volatility around Brexit.”

“But we are beginning to see signs of a slight recovery in demand. 1000 more buy-to-let loans in August than July is not a huge number, especially when you consider that the majority were remortgages, but at the same time it shows landlords and property investors are beginning to regroup.”

And Steve Bolton, Founder of Platinum Property Partners, added: “With tougher affordability checks being introduced for buy-to-let borrowers, we can expect the number of loans to fall further in 2017.

“The stamp duty surcharge is just one in a series of recent changes implemented by the Government designed to penalise landlords and derail the buy-to-let market. Section 24 (the Tenant Tax) will restrict landlords’ ability to deduct mortgage interest costs as a business expense and as a result force many to exit the market or increase rents, when many haven’t done so for years, as their growing tax bill will wipe out any profits. Wealthy, institutional landlords who can purchase properties without the need for mortgage finance will not be affected, creating an unfair playing field and leaving smaller landlord’s financial plans in ruins.

“The Government’s belief that buy-to-let tax changes will help residential buyers is hopelessly misguided. Tenants will undoubtedly be hit with higher rents as landlords struggle to stay afloat, making it even harder for them to save for a deposit. We have already seen evidence of this in Ireland, where a similar tax change resulted in a 50% increase in rents over a three-year period.”

Ian Larkin, co-group CEO at Target Group, said all indications were that lending had bounced back this month after a dip in July and August.

He added: “Fears that the market may be cooling over the longer term post the referendum seem unfounded as first-time buyer activity in particular is increasing, which is encouraging.

“However, uncertainty is currently clouding the buy-to-let market after the rule changes on stamp duty and that has had the desired dampening effect. Lenders will also be watching the impact of the Government’s decision to reduce the stimulus of schemes like Help to Buy even though it accounts for a relatively small amount of gross lending overall.

“Unsurprisingly, with interest rates as low as they have ever been, re-mortgage activity continues apace as borrowers move to take advantage of the opportunities out there to cut monthly repayments. The hope is that this Brexit bounce can be sustained in the weeks and months to come and lead into a strong end to 2016. ”



  • Julian

    All building up for a huge collapse in the London property market, already prices on numerous properties in and around Central London are being slashed and still no buyers, foreign buyers have mostly disappeared or keeping their powder dry, they can simply wait for much cheaper prices next year.

    The currency advantage to some foreigner buyers may get them out of bed but on the other hand they will be concerned about investing in a Country with an unstable currency and many headwinds going forward.

    Once interest rates start creeping up, the bubble bursts, expect drops of 35/50%

    Prices simply have to get back to proper multiple earnings nos. The whole market is a massive bubble, note Foxtons SP has gone from 240p to 100p that is a warning ding of trouble ahead. London property is one of the Worlds biggest asset bubbles and most know this, the smart money departed the party late 2014