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Thursday, December 24, 2015

FT warns on buy-to-let

Reports in the FT warns that purchases of buy have peaked and will start to decline from 2016.  The Council of Mortgage Lenders says that it expects purchases of buy-to-let investment properties to fall from about  116,000 in 2015 to 105,00 in 2016 and then 90,000 in 2017.

Fall in investment numbers by landlords

The fall in investment numbers by landlords could be seen as a double sided coin. Less investment means less additional competition in the lettings market.  This is no bad thing. Many of us longstanding landlords have experienced a flood of new landlord entrants into the market which despite Government worries over rent rises has actually suppressed rental growth (outside London).  However, if you dig deeper on why the numbers of purchasers are expected to fall then the news gets more sinister.

Consultation exercise launched on clamp down on buy-to-let

We all know that the growth of buy-to-let in recent years has part being as a result of attractive rental market where more people are looking to rent rather than buy.  However, the ability of landlords to finance their investment has also been critical to the growth of the sector.  From a situation after the depression in the early 1990s where obtaining a commercial loan to buy residential property was virtually impossible (I remember having to practically beg my bank manager for a loan & the most he give me was a 15 year repayment on a double digit interest rate).  The opposite has occurred following (ironically what was know as the 'credit crunch') in that there has been a massive explosion of lending to landlords on terms that are often as attractive to those looking to buy there own home.

All the above has spooked the Bank of England governor Mark Carney who sees it as potentially destabalising as people seek to use 'cheap money' to gear up on property investment and not pay sufficient regard to what will happen when interest rates start to rise.

Bank of England expected to act to curb lending

This leads us to expect the Financial Policy Committee (FPC) to push for extra powers to regulate mortgages in the sector.  The mechanisms for this would be for the Bank of England to require banks to hold more capital against these loans which effectively would drive up the cost of providing the capital.  This is then passed onto landlords as higher costs of lending which will obviously deter some landlords from going ahead with their investments.

To read more about the crackdown on buy-to-let mortgages.

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