‘Subdued’ is not a word you often hear with regards to the UK property market at present, and it’s certainly not one we’ve become accustomed to with regards to the buy-to-let sector recently. However, when we historically look at the month of January and the lending activity that tends to take place in the first 31 days of any year then it is perhaps not surprising that the latest CML press release says, ‘January is always a subdued month in the mortgage market…’
The point we should make though is that a subdued January in a growing market can look particularly strong, especially if we compare it to earlier periods. I’m loathe to make judgement on an entire year from just one month’s statistics however compared with the very recent past, January might be seen as something of a ‘strong’ month. 15,700 gross BTL advances were made with a value of £2.1bn, which was an 8.3% increase from December in terms of number and a 10.5% increase in terms of money advanced. Indeed, conduct the year-on-year comparisons and the improvement is even more startling with the number of advances having increased by 36.5% and the value of those loans up by 40%.
Indeed, if we look back over 2013, which admittedly starting off slowly with momentum growing particularly in the second half, it’s possible to see that January’s total number of loan figures were only just shy of the two best months during that entire year – October and November. To reiterate we can hardly count this as a ‘subdued’ performance especially if we take the line that the market tends to gain strength as a year progresses – this was certainly the case in 2013 where we saw notable jumps forward in both May and then October.
What is also notable is not just the improvement in house purchase loan levels but also the reawakening of the buy-to-let remortgage market. The number of remo loans by number in January were up 41.5% on the year previously and up 54.9% by value. It would seem that landlord borrowers are now willing to countenance remortgaging their properties after a particularly long period where they were happy, or perhaps more likely, with little choice but to stick with what they had.
Remortgaging levels have clearly improved over the past four or five months and this can probably be put down to keener rates and lenders having inched up their maximum LTVs/relaxed their criteria over that period. I do know however that there has been some concern voiced by industry participants about the prevalence of two-year fixed-rate deals and the fact landlord borrowers appear to be favouring these types of products. It is has been argued that, in an environment where rates look likely to rise next year, perhaps borrowers might be better off looking for longer five-year deals than short-term offerings.
This type of choice will of course depend on an individual’s circumstances and view on just when interest rates may be on the rise. I’m of the opinion that even with a series of smaller rate rises over the next couple of years, buy-to-let product pricing is likely to remain competitive during that timescale. Indeed, given the apparent level of interest in buy-to-let lending I’m fully expecting to see a number of both new and returning lenders back operating in this sector in the short-term. In effect, competition is likely to continue growing and therefore product levels should rise and their pricing should (hopefully) remain keen for some time.
2014 could actually be one of the most competitive years for the buy-to-let sector for some time. I’ve already suggested that some lenders, spurred on by the requirements of the MMR in the residential market, might look to up their volumes in buy-to-let in order to maintain total run rates given they may be taking their foot off the gas slightly in the world of regulated loans in order to secure and maintain MMR compliance. Conversely we might also see some lenders, who are not traditionally active in vanilla residential loans, moving into this market to potentially deal with those borrowers who, because of changes in affordability measures, are not going to be able to secure a loan via traditional avenues.
It all makes for an interesting marketplace at present particularly with the MMR just weeks away. I suspect there could be a flurry of activity pre and post-26th April as the lending fraternity gets to grips with the new environment and therefore by the summer we should all have a better understanding of how the rest of 2014 is going to pan out.
Bob Young is managing director of CHL Mortgages
