Lending to buy-to-let investors rose by almost two-thirds in the 12 months to February, as some landlords took advantage of low interest rates to remortgage, while others added to their portfolios ahead of changes to stamp duty rates.
Figures from the Council of Mortgage Lenders (CML) showed that 23,700 buy-to-let loans worth £3.7bn were taken out during the month, a 47% increase in volume on the previous February and a 61% rise in value.
The key driver was remortgaging, with borrowers taking advantage of low rates to refinance their portfolios. Of the total, 13,100 mortgages worth £2.2bn were remortgages.
The changes to stamp duty on second homes, which came into force on 1 April, also boosted buying activity by investors in the early part of the year. The CML said the number of house purchase loans for buy-to-let was up by 30% year-on-year, at 10,300.
The CML’s figures also show strong year-on-year growth in house purchasing by first-time buyers, with the value of loans hitting £3.4bn – 21% up on February 2015’s figure.
The number of first-time buyer mortgages was up by 11% year-on-year, at 22,000.
First-time buyers typically borrowed 83% of the value of the property they were buying, and spent 18.1% of their gross monthly income on mortgage repayments.
The monthly cost of servicing a loan was down from 18.9% in February 2015, as mortgage rates continued to fall. However, the rising cost of homes meant new buyers were borrowing more relative to their incomes, with the average loan worth 3.46 times earnings, compared with 3.33 in February 2015.
Separate figures from the Bank of England show that lenders expect demand for buy-to-let loans to fall significantly in the second quarter, while demand for other mortgages should increase slightly.
Paul Smith, CEO of haart estate agents, said the CML’s figures pointed to “a very healthy property market”, and that the next few months could be good for new entrants into the market.
“For first-time buyers the next few months is a good time to buy – particularly now they are no longer competing with buy-to-let investors after the stamp duty surcharge that came into effect at the beginning of this month,” Smith said.
“Prices for first-time buyers are still at sky-high levels – with the average price of a starter home at £176,281 in February, a 9.8% annual increase – but today’s data shows that lenders are providing the funds for many of them to get on the property ladder, and help to buy has played an important role in this.”
David Whittaker, managing director of Mortgages for Business, a broker which focuses on buy-to-let loans, said he expected figures for March to also show strong lending to investors buying ahead of the stamp duty change.
“Over the next few months, I am expecting the buy-to-let market to quieten down somewhat as landlords take time to factor in the cost of the new stamp duty levy and, perhaps more importantly, work out new investment strategies to manage the forthcoming relief restrictions being imposed on individual higher rate tax payers,” he said.
“I also expect that remortgaging activity will continue to drive growth in the mortgage market, as increasing numbers of people opt to use their first homes as a means of securing a second home for investment purposes.”
