When we put together the LendInvest Buy to Let Index every quarter, we bring together data like capital growth, rental growth, the rental yield and transaction volumes to calculate which areas are really performing most strongly for property investors. It’s very easy to get caught up in just the yield, but in truth there are a host of factors which must be viewed together when evaluating a purchase.
At first glance, the latest index seems to tell a cautionary story on transactions, with every single postcode recording negative transaction growth. Some of the transactions falls have been particularly striking – Luton, which came top of the index, has seen transaction growth drop from 1.65% in our March index to -6.15% this time around.
Similarly Birmingham – which has long been a strong performer, ranking fourth in the latest index – has seen transaction growth tumble from 3.3% last time out to -6.46%.
Looking at negative transaction growth across the board, it’s easy to feel a little concerned. But inevitably there is more to this story than simply these headline numbers.
While purchases may have fallen, there has been an undoubted spike in interest for buy-to-let remortgages. Recent data from UK Finance found that in April a total of 14,300 buy-to-let remortgage deals were taken out, up by a massive 32.4% on an annual basis. The value of those deals had jumped by a similar amount, up by 35.3% to £2.3bn.
We have seen a similar appetite for remortgaging in our own business too, and in my opinion this significant jump is down to a couple of different factors.
The first is the seeming inevitability of an imminent base rate rise. OK, so it seems like everyone has been saying this for a while, but it seems somewhat certain that there will be a base rate rise during 2018. In fact, the way that Mark Carney, the governor of the Bank of England, has been talking about the recent performance of the economy has convinced some that that rise is coming next month.
In a speech, Carney said: “The incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate. A number of indicators of household spending and sentiment have bounced back strongly from what increasingly appears to have been erratic weakness in Q1.”
This regular drip drip of hints that a rise is coming has understandably pushed borrowers of all kinds to think carefully about whether it’s time to remortgage to a new deal, before rates are inevitably pushed upwards.
There is another important timely factor to consider as well. It’s only a little over two years since the higher rate of stamp duty for second properties was introduced. It’s fair to assume that a large number of landlords, rushing to beat that deadline, opted for short-term fixed rates and those fixed periods have now concluded.
And rather than move onto a standard variable rate, these landlords are opting to move now to secure a new deal, rather than wait and see rates likely go up once base rate rises.
I think this jump in remortgaging activity among landlords is hugely encouraging. There has been so much talk of landlords looking to sell up and leave the market – earlier this year the National Landlords’ Association said that it believed as many as 20% of its landlord members were looking to reduce the size of their portfolios.
But these enormous remortgaging levels clearly demonstrate that landlords are not walking away entirely, instead devoting their energies to improving the finances of those portfolios.
That’s a positive indication that they are in it for the long haul, and that no matter what additional challenges may have been thrown their way, in the form of tax and regulatory changes, they still want to invest in bricks and mortar.
It’s a timely reminder that there is a lot more to the buy-to-let market than simply new transactions.
Ian Boden is sales director at LendInvest