Landlord action to mitigate higher tax costs will lead to a lower level of buy-to-let remortgage transactions going forward, Paragon’s PRS Trends Report for Q1 has predicted.
While landlords with an average of 12.8 properties and over 20 years’ experience in the private rented sector (PRS) remain engaged in the sector, they are now prioritising measures to bolster financial strength over portfolio expansion.
John Heron (pictured), director of mortgages at Paragon said: “The shift in focus from portfolio expansion to financial strength has driven a surge in buy-to-let remortgaging, with lower interest rates and longer initial fixed periods helping landlords reduce finance costs and lock in greater certainty.
“However, it also extends the product maturity cycle, guaranteeing a reduction in the scale of opportunity to refinance buy-to-let mortgage deals over the next few years.”
Landlords have scaled back their buying intentions, reduced their reliance on mortgage debt and improved affordability by spending less of their rental income on mortgage payments.
For example, the proportion of landlords looking to purchase property has fallen from between 15-20% before the announcement of tax and regulatory changes in 2015 to just 7-10% today.
Average portfolio gearing – which measures the proportion of debt finance relative to a portfolio’s overall value – has fallen from 40% in 2014 to 33% today, with landlords who have three or more properties borrowing 36% of their portfolio value on average.
Meanwhile mortgage costs as a proportion of rental income are down from 30% at the beginning of 2017 to 27%, also aided by landlords remortgaging onto lower interest rate and longer-term fixed mortgage deals.