Home lending up in UK after dip, but buy to let mortgage market remains down

Home lending in the UK increased month on month and year on year in May, however expectations for this year and 2018 in the buy to let sector have been revised down due to burdens on the housing market.

Overall, the Council of Mortgage Lenders estimates that gross mortgage lending reached £20.1 billion in May, up 12% increase on both April and on May last year, driven by remortgaging and first time buyers.

But the CML’s buy to let forecast for 2017 and 2018 has been revised down from previous expectations at the end of last year, reflecting tax and prudential burdens in the housing and mortgage markets.

The CML now expects buy to let lending of £35 billion in 2017 and £33 billion in 2018, a decrease from £38 billion in each year, forecast in December last year.

‘Remortgage activity and first time buyers continue to drive lending this year. Looking ahead, we expect to see this trend continue, but not as strongly, as the factors supporting lending are blunted by less favourable economic conditions,’ said CML director general Paul Smee.

‘Buy to let had a weak start to 2017 and the sector’s contribution to overall net mortgage lending has fallen considerably over the last year. While falling mortgage interest rates have helped support borrowing, tax and prudential measures are exerting pressure on the buy to let market,’ he explained.

‘Following the distortion of the stamp duty change on second properties last year, we expected a slight recovery in lending levels. However, this has not materialised, and we therefore have lowered our forecast for buy to let lending this year and next This re-emphasises the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed,’ he added.

Landlords, especially amateur landlords with just one or a small number of properties, have had their confidence hit extremely hard by the new tax and prudential lending regime, according to Alastair McKee, managing director of independent mortgage broker One 77 Mortgages.

‘The downward revision in the buy to let forecasts reflects the sharp deterioration in confidence among everyday landlords. At the more professional, portfolio end of the buy to let market, the new tax rules and lending regulations have had less of an impact and investors are responding proactively in order to maintain a margin,’ he added.

Jeremy Duncombe, director of the Legal & General Mortgage Club, believes that a rise in mortgage lending is largely a result of borrowers having to borrow more to get on the increasingly expensive property ladder, not necessarily a symbol of more people getting mortgages.

‘However, in the current low interest rate environment borrowing continues to remain attractive to many, particularly to first time buyers who help keep the market buoyant. There are currently a lot of products available on the market,’ he added.

According to Jeff Knight, marketing director of Foundation Home Loans, the mortgage market is clearly able to withstand more than a few knocks. ‘Record low mortgage rates have matched on-going incentives for first time buyers, boosting confidence for those looking to get a foot on the housing ladder,’ he said.

‘That said, the uncertainty off the back of the election may delay a more immediate solution to the ongoing supply and demand imbalance, and appetite of those seeking mortgage approvals will be dampened with less quality property to choose from,’ he pointed out.

‘While we wait to see what further policies will be introduced, or axed, as may be the case with Help to Buy, we need to ensure that the buy to let market is robust enough to best serve those saving up for that first deposit in the meantime,’ he added.

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Written by: Houseladder