Seeking a better interest rate
The proportion of landlords remortgaging is running close to record levels, according to Paragon’s Q1 2018 Financial Adviser Confidence Tracking (FACT) Index.
Based on interviews with 201 mortgage intermediaries, the report states that 52% of buy-to-let mortgage cases in Q1 2018 were for landlords seeking to remortgage, up sharply from 29% in Q1 2015. This is prior to the Summer Budget in the same year when wide-ranging tax changes were announced, including the gradual removal of tax relief on BTL mortgage interest.
Over the same time period, intermediaries say they have seen a drop in the proportion of mortgage applications from first time landlords, down from 19% to 13% of the total, as well as a fall in landlords remortgaging to raise funds in order to extend their portfolios. Remortgaging for portfolio expansion has fallen from 39% to 22%.
Among those landlords looking to remortgage, the proportion seeking to secure a better interest rate reached the highest level ever in Q1 2018.
Compared with three years ago when equal numbers of landlords were remortgaging for a better rate and to raise capital, in Q1 2018, 60% of landlords said securing a better interest rate was their primary objective. In contrast, those remortgaging to raise capital fell to the lowest level recorded, at just 30% of the total. As a result, the gap between landlords looking for a better rate and those raising capital is now at the widest seen since 2013, given that just two years ago, equal numbers were remortgaging for each of the two reasons.
“There’s a wide range of factors contributing to the surge in landlords remortgaging at the moment. These include the expiry of the initial term on mortgages taken out ahead of the stamp duty changes for second properties, the expectation of rate rises on the horizon and a desire to minimise interest costs in the face of new mortgage affordability rules. It will be interesting to see the extent to which mortgage applications for purchases and portfolio extensions increase once these factors have played out”, comments John Heron, Managing Director of Mortgages at Paragon.
BTL Mortgage Market – Landlord Demand
Intermediaries report little change in landlord demand since Q4 2017, with four out of ten reporting that landlord demand for buy-to-let mortgages is stable. Less than 6% of intermediaries describe landlord demand as ‘strong’ or ‘very strong, down from 9% in the previous quarter, but still considerably lower than highs of 35-45% between 2013-2016.
Remortgaging continues to drive demand in the buy-to-let market, with the proportion of buy-to-let remortgage cases stable compared with Q4 2017. Remortgaging has been on the rise since mid-2015, with mortgages for first time landlords falling from 18% to 13% of the total over the same time period. Landlords refinancing for portfolio expansion is also down, dropping from 39% to 22% of the total.
On 2nd July, specialist buy-to-let broker Commercial Trust Ltd, was said to be expecting a significant rise in financing enquiries as “a number of buy-to-let landlords… rush to complete last-minute mortgage deals” ahead of the Licensing of Houses of Multiple Occupancy (LHMO 2108) due to be enforced from October 1st 2018. (*Source: Property Eye)
Full FACT report Q1 2018
The Financial Advisor Confidence Tracking Index (FACT) has been tracking financial adviser sentiment since 1995 based on the number of mortgages introduced to customers over the previous quarter.