While remortgaging in the final quarter of 2016 continued to account for the bulk of activity in the buy-to-let mortgage market, lending for purchase’s market share returned to levels seen before the third quarter, according to Mortgages for Business’ Complex buy-to-let Index.
The share of lending for purchases in the vanilla buy-to-let market – which refers to standard buy-to-let transactions – grew from 28% in Q3 to 38% in Q4. Meanwhile, there was a more subtle shift in the Houses in Multiple Occupation (HMO) lending market, with the share of purchases rising to 26%.
Mortgages for Business said that while this is below the level seen in Q2 2016, it brings this part of the market back in line with the level seen before the announcement of the changes to landlords’ tax relief in 2015.
David Whittaker (pictured), CEO of Mortgages for Business, said: “It is encouraging to see that the share of lending for purchase in the buy-to-let mortgage market returned to normal in Q4 2016. Following a notable shift towards lending for remortgage in the third quarter, landlords showed they were once again willing to commit to new purchases. The outcome of the EU Referendum, and the subsequent macro-economic uncertainty dampened purchase lending in Q3, with many landlords initially opting for a cautious approach.
“While changes to Stamp Duty on second properties and landlords’ tax relief mean that landlords need to approach their investments intelligently, there are still excellent returns to be had in the market – especially compared to other asset classes.”
The results of the Index also show that the average loan to value (LTV) ratios across all products remained stable at 67% in the final quarter of 2016. Gross yields also remain unchanged.
The Index also reveals that there was a significant uplift in the typical property value and loan size in the multi-unit block mortgage market. This is due to an increase in the number of mortgages being taken out on very high value multi-unit properties. Over Q4, 30% of multi-unit applications involved properties worth more than £1,000,000.
Whittaker continued: “There is clearly an appetite among investors for more valuable multi-unit blocks, with the lending share of million-pound plus blocks from growing under a fifth in Q3 to almost a third in Q4.”