Fear of rate increase sees BTL remortgages soar
Squeezed yields from different property types, combined with fear of a base rate increase and government and regulatory moves, have caused buy-to-let landlords to remortgage at a record rate.
Data collated during the third quarter from specialist broker Mortgages for Business revealed that more investors were remortgaging now to take advantage of low interest rates while looking to maximise their rental income.
According to MFB’s latest Complex Buy-to-Let Index, remortgaging has outperformed new purchase loans for the fourth successive quarter.
In Q3 2015, 66 per cent of new loans for the lowest-yielding ‘plain vanilla’ BTL properties were for remortgaging – a 4 per cent increase since Q2 – compared to 34 per cent for new property purchases.
Similarly, for multi-unit freehold block (MUFB) properties, remortgaging comprised 89 per cent of new mortgages in Q3 2015, compared to 82 per cent in Q2 – and just 67 per cent in Q3 2014.
David Whittaker, managing director of MFB, said there was a mood change among landlords: “Consolidation is the order of the day. Landlords are taking full advantage of record low borrowing rates while this lasts.”
The main reason for this, said Mr Whittaker, was “a natural cooling in the BTL industry after an exceptionally strong first half of 2015” – adding that “recent unfriendly noises” from the government and Bank of England had not helped.
However, mortgage providers ensured no shortage of supply. The number of available BTL mortgage products stood at 953 in Q3 2015 – an 11 per cent increase on the second quarter and a 35 per cent increase on Q3 2014.
The data also showed the spread between the lowest yielding property type (vanilla) and the highest (houses in multiple occupation) had widened to 4 per cent. Standard ‘vanilla’ BTL property gross yields dropped 0.8 percentage points in three months, to what MFB described as “the psychologically important level” of 5 per cent.
Similarly, between Q2 and Q3 2015, the yield on MUFBs fell by 1 per cent, from 7.1 per cent to 6.1 per cent – a 2.5 per cent drop from the 8.6 per cent yields available in Q3 2014. Houses in multiple occupation fared better, with yields declining only 0.1 per cent between the second and third quarters to 9 per cent.
Adviser view
Mark Harris, chief executive of London-based SPF Private Clients, said: “With talk of a rate rise on the horizon, and some excellent deals available, it is a good time to remortgage – and the number of borrowers doing so is rising accordingly.”
