Is Brexit Affecting Buy-To-Let Mortgages?
The UK’s decision to leave the EU has had many political and social commentators speculating over its possible effects on the country. One such area of debate lies with the future of the housing market, notably with the flourishing buy-to-let sector.
Some estate agents are predicting that it will be harder now to obtain a mortgage for a buy-to-let property during the post-Brexit aftermath. However, other reports don’t seem to indicate the Leave decision will play a major part in the autonomy and profit margins of landlords.
Bank of England Regulations
Earlier in the year, before the EU Referendum, the Bank of England laid down tighter regulations for landlords looking for buy-to-let mortgages. Borrowers were required to pass more rigorous income tests and prove they could make repayments at higher interest rates than usual.
The stricter regulations were implemented in the hope of cooling the UK’s overcrowded buy-to-let market, reducing mortgage approvals by around 10-20% in three years’ time. This way, the government hoped more first-time buyers would get their foot on the property ladder instead.
Post-Brexit, the Financial Conduct Authority is again looking to reduce the number of buy-to-let mortgage approvals, this time for smaller lenders who fall outside regulation of the BoE. Philip Salter, director of retail lending, has compounded this warning to non-bank lenders to reduce poor standards of lending.
The onset of Brexit may further reduce mortgage approval rates as banks and building societies wait until the dust settles before going back to aggressive lending. The crowdfunding group Property Partner believes minimum buy-to-let deposits could rise to 60 per cent in some areas due to the Leave decision.
Although the reverberations of Brexit aren’t totally clear yet, credit ratings agency Moody’s suggests the purchase of buy-to-let properties will decrease rapidly. The firm predict that the increased demand for credit and higher stamp duty for additional homes will “reverse previously positive market conditions for the UK mortgage market”.
Moody’s also expect that lenders will look more favourably on traditional mortgage applications rather than those for the renting sector:
“Post-Brexit, we expect building societies to be more reliant on growth in deposit gathering and reduction in lending to help bridge their funding gap. In the UK market, most future issuance from building societies will be concentrated in the prime mortgages segment, rather than buy-to-let mortgages.”
Alternatively, some prospective landlords may see the current economic climate as an attractive buying opportunity. The minefield of changes imposed by George Osbourne earlier in the year were not all that discouraging for experienced landlords with the capital to cope with his tighter controls. In any case, the new Chancellor Philip Hammond may decide on reducing these changes with his first budget announcement.
In another twist, the potential effects of Brexit may offer relief to the strict regulations imposed on the buy-to-let sector earlier in the year. If house prices were to fall faster than rental incomes, potential yields could rise. Additionally, the chance of obtaining a mortgage for certain properties could be improved as rental income would now cover more of the interest cost.
Overall, interest rates of buy-to-let properties remain on the low side from a wide selection of lenders. In many regions of the UK where house prices are below the national average yet are on the rise, notably in Liverpool, Manchester and Leeds, big gains are still to be made on buy-to-let investments.
For cash rich investors who won’t require a mortgage, these stricter regulations won’t affect them too much in any case. In fact, it could actually clear space in the market and push down prices, especially in the case of property auctions as bidders will start lower to counteract increased stamp duty charges. Similarly, richer buyers who can afford to pay in cash will avoid punitive changes to mortgage interest relief.
For those who’ve been put off the buy-to-let market, there’s still plenty of opportunities to buy homes in need of minor renovation work and then sell them on for profit. Alternatively, buying off-plan has never been a better option for property investors -seen as a safe haven for people keen to have a good return on their money in uncertain times.
As opposed to the inflexibility of home ownership buy-to-let provides much needed affordable rented accommodation in city centres for young professionals and indeed relieves pressure on the UK housing stock.
If anything, we can be certain that as the population and house prices keep increasing, the housing issues that the UK faces aren’t likely to be alleviated without a long term look at the UK housing stock and the buy-to-let sector.
If you’re interested in finding your next buy-to-let property, you might enjoy our Top 6 Postcodes in Liverpool to Invest In.
Alternatively, if you’re at the beginning of your landlord journey, you might be interested in Can You Really Make Money with Buy-To-Let Investments?