The latest buy-to-let lending figures, issued by the Bank of England, may well give Chancellor George Osborne plenty of ammunition when it comes to why he, and the regulators, have focused so strongly on curbing activity in this sector. The figures for Q1 revealed that buy-to-let lending was greater than that for first-time buyers, with 21.1% going to landlords and 16.9% going to those getting on the housing ladder for the first time.
Osborne might well review this and suggest he was absolutely right to intervene so significantly in the sector and to attempt to create a more level playing-field between the two demographics. The big question is, whether he is actually right about this because it will be quite clear to many that lending figures for buy-to-let in quarter one this year were undoubtedly skewed by the government’s intervention, in particular the decision to render a 3% extra stamp duty charge for those purchasing additional properties and second homes.
One would have to suggest that the 21.1%/16.9% levels would have been quite different without the deadline as landlords would have been unlikely to bring forward their purchasing with such haste. I suspect that a more traditional lending pattern would have been seen without all this activity, and dare I say it, lending to first-time buyers’ would have been in the ascendency once again.
Moving forward, we’re really not going to get any clarity in terms of the effectiveness of Osborne’s changes to stamp duty/impending changes to mortgage tax relief by looking at the figures for Q2 when they’re released. The fact being there is bound to be a major drop-off in buy-to-let lending because of the heightened activity earlier in the year.
Indeed, figures from other sources, already suggest this is the case. The CML’s own figures for April show the extent of the drop-off, with landlord borrowing at £2.5bn, down 65% month-on-month/7% year-on-year; the number of loans was 16,100 in total, again down a sizeable 64% in March, and 10% on April 2015.
What is perhaps interesting however is the comparison with last April – let’s not forget that 2015 was not exactly a slow market for buy-to-let and the fact that April’s figures this year (even after an incredibly busy March) are still within touching distance of the same month last year, may well be a good indicator of the underlying strength of the sector. No one is suggesting that March is normal but I sense the doom-mongers who are predicting a huge drop-off in activity might have to reappraise their predictions based on this.
What does come next however is hard to predict, especially when you throw in the results of the EU Referendum which will be announced at the end of this week. Anecdotally it seems obvious that activity levels for all types of mortgage business are not exactly forging ahead, and until the result is known, perhaps why would they? Buy-to-let lending however has to contend not just with how this incredibly important issue plays out but also, once we’re past this, it must deal with other potential game-changers, not least the aforementioned paring back of mortgage tax relief due to begin over a three-year period from 2017. Interestingly, this was cited as the biggest worry for landlords in a recent survey by Amicus, alongside changes to CGT.
Perhaps no big revelation in this but it does show perhaps that the stamp duty changes do not figure so highly on the landlord agenda and may well not be as big an obstacle to continued investment as some, notably the Chancellor, would like. What we will undoubtedly see, in order to confront the tax relief changes, is a continued move to the use of limited company vehicles to purchase and house rental properties – lenders are reacting to this greater demand and it should result in the continued corporatisation of landlord activity in the private rental sector.
With the current level of uncertainty I’m not sure we’re going to see a new normal in the buy-to-let market until the end of Q3 and Q4 this year. My own opinion is that demand for buy-to-let loans will have re-established itself by then and based on the underlying drivers – namely increased numbers of tenants, continued difficulty for first-time buyers’ saving deposits, lack of housing supply, etc – those active in this market will continue to remain in it and will be looking to add to portfolios for many years to come.
Richard Adams is managing director of Stonebridge Group