If you were looking for the most obvious financial services headline of the year then, ‘Buy-to-let lending drops in April’ was probably going to be it. I’m not sure if bookmakers ever take bets on whether mortgage lending in the buy-to-let sector is likely to drop month-on-month, but prior to these figures coming out I would have suggested they steer well away from this particular market on this occasion.
In a nutshell, given the level of activity and lending that took place in March prior to the stamp duty changes, this was always going to be the case. Did anyone really think that lending in April wouldn’t be significantly down on March?
Let’s consider the numbers. In April last year buy-to-let lending totalled £1.2bn, in April this year it had fallen to £600m, however in March 2016 the sector hit £4.3bn. Yes, the figures are 50% down year-on-year but when you add in March this year you do not need to be a genius to see that we have all been working in a skewed market because of the introduction of the deadline.
Therefore, I would suggest those now saying the buy-to-let market is on a terminal decline because of these figures immediately stop sniffing the sherry bottle and sober up a little. Because the true facts of the matter are that government intervention has determined buy-to-let activity in 2016 and because of this we may not see signs of a normalised market for some time. And of course this ‘new normal’ is going to be somewhat different to what came before, because now landlords and investors have to factor in the extra 3% stamp duty charge to their calculations and their decisions to purchase further properties.
We, of course, await further figures for May and June, and the rest of the summer, but I would suspect that we are not going to get a true idea about what this ultimately all means for the sector until towards the end of the year. Add in the potential for a ‘Brexit’ and once again we will have ‘outside’ forces determining which way, not just the buy-to-let sector, goes but the entire mortgage and housing markets, and the whole of the UK economy.
Those who may be worried by what happens next to the buy-to-let sector should, in my opinion, consider the fundamentals of its continued popularity. Are they still in place? The answer, for the majority, is yes. Tenant demand remains strong; house prices remain high, even if they fall post-Brexit; new housing supply remains low – and could drop further if we leave the EU; prospective first-time buyers continue to find it difficult to save for a deposit, get a mortgage and purchase a home. The list goes on.
All this means that the demographic and wider drivers fuelling interest and activity in buy-to-let remain and they’re unlikely to be changed at any point in the very near future. This means those calling (once again I might add) the ‘death of the sector’ appear to be embarking (once again) on a fool’s errand.
The sector and its participants was always going to need some time to adjust to the changes – and of course we can add the tax relief changes coming next year to this – and we are now working through this adjustment period. However, I don’t see this as being a significantly long time of adjustment; already we are seeing with landlords’ utilising limited company vehicles that active players can see what needs to be done and are preparing themselves to make the most of the rules and continue to make their investments. It’s why lenders like ourselves have been so active in this area, and why others will inevitably follow.
While recent days and weeks may not have been the busiest you will have seen for the buy-to-let sector, with the fundamentals remaining strong, with lenders continuing to be active with strong appetites, and with an ongoing commitment to handle the forthcoming changes as best as possible, I believe the future of the sector is assured.
Bob Young is chief executive officer of Fleet Mortgages