Amidst a lot of speculation about an early increase in interest rates in September the Monetary Policy Committee of the Bank of England maintained the bank rate at a record low of 0.25%. However the Committee hinted that the cost of borrowing could increase in the coming months and market sentiment is that there is an 80% chance of an early rate rise. In September the tightening of underwriting standards by the Prudential Regulation Authority (PRA) came into effect. This is likely to decrease the supply of credit available to landlords. Borrowers now have to disclose more comprehensive financial plans and show the ability to repay their mortgage at a 5.5% interest rate.
The Council of Mortgage Lenders (CML) expects BTL lending of £35 billion in 2017 and £33 billion in 2018 compared with the previous CML forecast of £38 billion in each year. This is a decrease of around 8% in 2017 and 13% in 2018. CML director Paul Smee commented “BTL had a weak start in 2017 and the sector’s contribution to overall net mortgage lending has fallen considerably over the last year. While falling mortgage interest rates helped to support borrowing, tax and prudential measures are exerting pressure on the BTL Market.”
In the past year BTL activity was largely driven by re – mortgage lending which accounted for over two thirds of total lending. The number of loans for BTL house purchase remained low compared to the activity seen before the change in stamp duty on second properties introduced in April last year.
The National Landlords Association reports that landlords are already finding it harder to arrange mortgages with 43% saying that the process of obtaining finance has become more difficult since the beginning of the year. Borrowers are quite rightly opting for five year fixed rates as a hedge against future increases in interest rates in the short to medium term.
The availability of BTL mortgages has been one of the main enablers of the BTL market and it is clear that the rules of the game are changing. How should BTL investors respond? The first step to consider re – mortgaging before the anticipated increase in interest rates comes into effect. Sound business planning and prudent management of an existing portfolio will help to secure new finance but if that is not available from the mainstream lenders consider applying to the specialist BTL mortgage companies.
There is more good news on improvements to the infrastructure in Temple Quarter Enterprise Zone at Temple Gate and Temple Meads Station. The Temple Gate scheme will include:
- Removing the Temple Circus roundabout and replacing it with a simplified, signal controlled junction
- New high quality segregated pedestrian and cycle routes
- Better public transport facilities, new bus stops and shelters and a MetroBus stop
At Temple Meads Station work to extend extensions to platforms 13 and 15 has been completed making way for the arrival of new, longer intercity express trains this autumn.
These are part of the overall plan for the Enterprise Zone, an increasingly important area for BTL investors to consider for inclusion in their portfolio.
Image: By BristolIcarus (Own work) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons
In the latest City Level Summary of House Prices in the top 20 cities in the UK published by property analyst Hometrack Bristol is in 13th
place with year on year growth in house prices of 3.7%. This is higher than the average increase for London (2.8%). The average house price in Bristol is now £268,400, the average for the twenty cities in the index is £252,700. House prices in Bristol increased by 1.2% in the last quarter.
Over the summer, Alex Brazier, the Bank of England Financial Stability Strategy and Risk Executive Director made a welcome visit to Bristol hosted by investment group Hargreaves Landsdown. He made some very blunt comments about the conduct of the banking sector that led to the 2007- 2008 financial crisis but is confident that the financial system is now “three or four times stronger than it was ten years ago.” His job is to make sure that the banks are capitalised sufficiently to absorb any shocks and to make sure that that do so by a wide margin. This is done by applying stress to banks and other financial institutions.
He admitted that the stress tests had not been popular with some senior figures and were deemed to be “unsporting” by one chief executive. Mr Brazier considers this view to be a confirmation that the stress tests are getting it about right.
Buy to let (BTL) investors who are reluctantly coming to terms with the new guidelines for higher rental cover and higher deposits for BTL mortgages should reflect on how difficult it was to get a BTL mortgage in the wake of the financial crash!