Share of New Lending for Buy-to-Let Drops to Lowest Level since 2012
Rose Jinks - December 12, 2018
The share of new lending for buy-to-let properties dropped to its lowest level since 2012 in the third quarter (Q3) of 2018, according to the latest Mortgage Lenders and Administrators Statistics from the Bank of England (BoE).
During Q3, the share of new lending to buy-to-let landlords decreased to 12%, which is the lowest level recorded since Q4 2012.
On the other hand, the share of new lending to first time buyers remained steady in Q3, at 21%.
Overall, the outstanding value of all residential mortgage loans continued to increase in Q3, to £1,430 billion, which is 3.2% higher than in the same period of 2017.
The value of gross mortgage advances grew by 3.7% in the year to Q3, to reach £73.5 billion. This is the highest level seen since Q4 2007.
New mortgage commitments (new lending that lenders have agreed to advance in the coming months) were 4.7% higher than a year ago in Q3.
Remortgaging, as a proportion of new lending, was two percentage points higher than Q3 2017. However, it dropped marginally on a quarterly basis, to 30%.
The proportion of high loan-to-income (LTI) lending (loans above four times the value of annual income for a single buyer or above three times the annual income for joint buyers) has risen by 1.8 percentage points in Q3, to 47%. The share of loan with a loan-to-value (LTV) ratio exceeding 90% also increased, to 4.3%.
The value of outstanding mortgage balances with some arrears increased for the first time since Q2 2016, to £14.5 billion, compared to £14.3billion in Q2 2018. These balances still account for only 1% of the total.
Mark Pilling, the Managing Director of Spicerhaart Corporate Sales, comments on the release: “The latest Mortgage Lenders and Administrators Statistics reveal that the value of outstanding mortgage balances with some arrears increased for the first time since 2016 Q2, to £14.5 billion.
“With the recent rate rises, I had predicted we would start to see arrears rise again, and I fear this could be the start of a more permanent shift. Consumers racked up a record £17.1 billion of credit card debt in October – 11.6% higher than a year earlier – and October is not usually a month associated with big spending. Since those stats, we have had a record spending day on Black Friday, most of which was online, so likely to be spent on cards, and we have Christmas coming up – traditionally a time when many families overstretch themselves in terms of spending.”
He continues: “There are growing concerns that many people are now relying on credit cards for everyday purchases, and, while many in this situation are able to keep their heads above water now, if there is another rate rise, payment shock coming off a fixed rate deal or rise in the cost of living, many people may struggle to make their monthly mortgage payments or rent – which, in turn, will impact landlords and, where appropriate, their ability to make mortgage payments.
“Repossession should always be the last resort, and lenders should always look to find another option if it is available. We can help lenders find solutions that best suit them and their customers, so it is important that lenders start looking at all their borrowers and identify those who are already having difficulties managing their mortgage, or are likely to experience future difficulties.”
Shaun Church, the Director of mortgage broker Private Finance, also responds to the report: “High LTI lending is at its highest level since the financial crash, accounting for nearly half of all new lending. With the property market stagnating, banks and building societies have been drumming up business elsewhere, by relaxing their lending criteria and increasing income multiples. In recent weeks, we have seen some lenders increase their income multiple to up to six times the annual income of borrowers.
“Income criteria has long been the primary obstacle for first time buyers looking to purchase their first home, this relaxation by lenders has therefore been welcomed and embraced by borrowers across the UK. And, with mortgage rates hovering near record lows, servicing a larger mortgage is unlikely to be too great a financial burden, for now. However, with interest rates expected to nudge upwards, slowly but surely, borrowers pushing themselves to the limits of affordability run the risk of overextending themselves when rates do eventually increase. Before rushing into a higher income multiple, borrowers should think carefully about potential rates and repayments, and more broadly about their future financial circumstances and commitments, to ensure they’re not putting too great a strain on their finances.”
He adds: “While these products adhere to stringent stress testing, and we’re far off from the lending levels of the past, those looking to borrow greater sums in relation to their income should be cognisant of the risks associated with such products. Seeking the advice of an independent mortgage broker can help borrowers ensure they opt for the right mortgage to match their needs and circumstances.”
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