November 2021 | Buy-to-Let

House purchase loans versus remortgages

Paul Brett is managing director, intermediaries of Landbay

The buy-to-let (BTL) sector has certainly boomed in its 25-year history with ups and downs coinciding with economic conditions and government interventions.

We can split these 25 years into two parts using 2015 as the before and after year. Up to 2014 the BTL market was driven by house purchase loans compared to remortgages but after 2015 that flipped with remortgaging becoming more dominant.

To put that into context, UK Finance BTL data began in 2002 so from then until 2014, more than half (55%) of BTL lending was house purchase with remortgaging at 44% and ‘other’ at 1%.

From 2015 to 2020, house purchase accounted for one third of the market (34%) and remortgaging almost two thirds (64%) with 2% other BTL lending.

What changed in 2015?

Various government announcements were made in 2015 regarding future changes to BTL to deliberately discourage landlords in favour of first-time buyers. Tax changes, affordability stress tests, introduction of portfolio landlords and more complex rules, to name a few.

Inevitably, some landlords sold up, especially those who were part-time, but it also discouraged property investment to some extent, hence less house purchase activity. However, there were still thousands of landlords needing to remortgage so that kept the BTL market buoyant. 

Every month since January 2015, the number of BTL mortgage transactions in the UK has been higher than house purchase but there have been two notable monthly exceptions.

These two months saw a huge jump in house purchase lending and the reason in both cases was stamp duty land tax. 

March 2016 was the highest month on record with 29,100 BTL mortgages for house purchase as buyers rushed to beat the new 3% stamp duty surcharge for owning second properties. This compares to 16,000 remortgage completions, which stayed a record high until October 2018.

The second highest month on record was June 2021 as 15,200 BTL house purchase buyers scrambled to meet the stamp duty holiday deadline, introduced due to Covid and the lockdowns. Remortgaging cases stood at 13,800.

Landbay’s lending

Looking at Landbay’s mortgage book over the past two years, pre-Covid and up to August 2020, our remortgaging submissions accounted for 53% of lending, slightly ahead of house purchase at 47%. 

Nevertheless, we are writing a substantially higher amount of house purchase loans than the general trend in the market, which I think is because we specialise in complex BTL lending. There are fewer lenders catering for clients borrowing through traded limited companies, for example, or first-time landlords buying HMOs.

From September 2020 to May 2021, the picture changed for us as there were largely more house purchase loans than remortgaging.

I put this down to the influence of the stamp duty holiday with landlords keen to buy and make a saving on the tax. Since June we have mainly gone back to more remortgaging than house purchase.

It just goes to show what influence government intervention has on people’s decisions to buy property when the tax rules are changed.

More business for brokers

Remortgaging will continue to be a large slice of brokers business as there are a substantial number of maturities due this year and next. 

In the wider market, there is £38.9bn of mortgages maturing in October but the figure is even higher for January 2022 at £39.6bn, according to research firm CACI.

There will be ample opportunity for brokers to make advance contact with their clients whose mortgages are due for renewal in both the residential and BTL markets.