Lower remortgage activity in the buy-to-let sector is expected going forward, due to landlords’ actions to mitigate higher tax costs, according to the latest PRS Trends Report from Paragon, covering the first quarter (Q1) of 2019.
The bank’s quarterly survey, which tracks the experience of more than 200 landlords with an average of 12.8 properties and over 20 years’ experience in the UK’s private rental sector, shows that, while investors in this group remain engaged in the market, they are now prioritising measures to bolster financial strength over portfolio expansion.
Specifically, the survey shows how landlords have scaled back their buying intentions, reduced their resilience 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% in Q1 2019.
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 typically borrowing 36% of their portfolio value.
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 rates and longer-term fixed rate mortgage deals.
The latest figures from UK Finance highlight the extent of the switch in focus from property purchase to remortgage activity, with buy-to-let purchase transactions in 2018 down by 34%, to 66,400, compared with 2014, and remortgage actvitiy up by 76%, to 169,100, over the same timeframe.
John Heron, the Director of Mortgages at Paragon, says: “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, are you expecting a reduction in remortgage activity going forward?