Is the reported fall in buy-to-let mortgages masking increasing investment?

This week’s investment news shows the fallacy of relying on a single headline

This week it has been reported that mortgage sales have crashed in April, though other news points to renewed optimism among property investors. Halifax has also released figures showing that flat prices have outpaced other property types since the end of the Global Financial Crisis. Finally, bad news for tenants (and the government) as more landlords say they will raise rents to cover spiralling tax liabilities.

Mortgage sales slump in April

Data from Equifax Touchstone appears to confirm what most pundits have been fearing: buy-to-let investors are abandoning the market. April’s statistics show that investors took out 20.4% less by way of mortgages when compared to March’s figure.

Every region in the UK experienced a slump in numbers, and when other mortgages are added in, the total fall in new mortgage business was 16%.

Director of Equifax Touchstone, John Driscoll, said, “Mortgage figures have nosedived following a strong first quarter, with every single region experiencing a notable slump in sales. Government measures to cool buy-to-let property sales, including the phased cuts to mortgage interest tax relief which started on 1st April, have no doubt played a role in diminishing sales figures last month.” He also blamed uncertainty surrounding the general election for the fall in the mortgage business.

He didn’t mention that investors may be obtaining finance from other sources.

Most investors can’t access mainstream financing

75% of property investors have raised money to purchase the property from non-traditional sources, according to MTF. Investors cited several reasons for this, including affordability, adverse credit, and tighter lending criteria.

Almost half of the investors surveyed got a secured loan to fund their property investment, while 39% opted for a bridging loan. When asked how the government could help the private rented sector, most respondents said that scrapping the additional 3% stamp duty on buy-to-let investment would be the most help.

Investors in flats make the biggest profits

Numbers from Halifax show that investors who bought flats in 2009 have seen their wealth jump more than other property investors. On average, between the end of 2009 and the end of 2016, flat prices added an incredible £1,008 per month, with the average price rising from £159,292 to £243,936.

This 53% increase in the average price of a flat is 14% more than the 39% increase in the average price of all other property types during the same period. Terraced homes came in second with a rise of 43%, while detached homes lagged with the lowest increase (19%).

However, the figures are skewed by London, where flat prices rose by 65% and represent almost half of all sales in the capital. If London were excluded, then terraced homes have performed the best in the UK with a rise of 41% during the study period. Flats come in second, with an increase of 35%.

The most popular property type continues to be terraced and semi-detached homes. Six out of every ten homes sold fall into these categories.

Martin Ellis, the housing economist at Halifax, said, “Nationally, terraced and semi-detached homes are the most affordable and popular homes with buyers accounting for 60% of sales during 2016. However average price growth for flats, helped by the London market, have outperformed all other property types since 2009.”

Landlords’ taxable profits to rise by 13%

As the changes to mortgage interest tax relief are phased in, landlords’ taxable profits are increasing. Letting agent Upad believes that landlords will see a 13% rise in taxable profits over the next year. By 2020, 100% of mortgage interest payments will be restricted to 20% relief.

Those affected are landlords who come into the higher personal tax bracket. Upad’s research shows that one in five landlords are planning to raise rents to compensate. It would mean tenants are paying permanently higher rent – not what the government was expecting when it introduced the tax changes.

What you can learn from this week’s property news

The big learning point from this week’s property investment news is to never look at one set of numbers in isolation.

For example, you would be forgiven for thinking that property investors are pulling out of the market in droves if you only paid attention to the mortgage sales news from Equifax Touchstone. When you combine this news with the results of the MTF survey, you’ll see that investors have simply refocused their energies on sourcing finance elsewhere.

Also, what the Equifax Touchstone report (and reports of it) does not mention is that new mortgage sales rose by 23.6% in February from January, and then a further 15.7% in March from February. April’s fall, on the face of it, sounds disastrous. But when combined with the previous two months’ huge leaps, it looks more like a healthy pullback.

Finally, landlords will be raising rents wherever possible to combat the effect of the reduction of mortgage interest tax relief. We always expected this to be the case. Government action has once again served only to make things tougher for tenants. Savvy investors will always find ways to protect and grow their profits, whether this means restructuring their investments, raising rents, or by other means.

To stay abreast of all the property investment news that matters, contact one of our team today on +44 (0)207 923 6100. Ask about our newsletter. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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