Buy-to-let market cools and opens the door to first-time buyers

Mortgage Matters

Franz Muehlthaler, mortgage adviser, Holroyd Miller Properties

Key indicators of this include: The price of the average property purchased by first-time buyers, which fell in January by 2.7 per cent, suggesting that there is less competition for the same sort of property with buy-to-let investors.

The average purchase price of investment properties purchased has fallen by 12.7 per cent yearon-year, potentially indicating that there is less demand in this particular sector and suggesting that investors are turning their attention to cheaper priced property areas.

Figures released in February from the Council of Mortgage Lenders report an increase in first-time buyer activity in 2016 of eight per cent year-on-year, and a decrease in the volume of buy-to-let lending by 20 per cent year-on-year.

During 2016 there was a mixed picture in terms of adoption of the more stringent lending criteria for investors, with some lenders adopting the new practices only weeks before the new requirements were implemented, whereas others had introduced the changes some months earlier. As a consequence, this allowed buy-to-let investors an amount of “wriggle room” for several months. They were able to shop around and find slightly more flexible terms when arranging their lending. Lenders now operate on a more stringent basis when underwriting buy-to-let borrowers, which has a levelling out of the playing field between buyers who are borrowing to fund the purchase of their first home and investors who are borrowing to fund investment.

The recent data available from the CML shows us that first-time numbers are now the highest since 2007 which, given the cooling in buy-to-let activity over the last few months as a result of the Stamp Duty Land Tax changes in 2016, impending tax changes and the new rules around lending, perhaps isn’t a coincidence.

What is also interesting to note is that the average firsttime buyer loan to value has increased slightly, which could reflect lenders showing more flexibility and being more accommodating in terms of assessing affordability. The attitude reflects the current levels of continuing ultra-low interest rates.

Other contributing factors in the increased activity could be attributed to some lenders introducing 95 per cent loan to value rates in January. This approach picks up the baton from the Help To Buy mortgage guarante scheme which ended in December. Of course, other initiatives exist and include:

Help to Buy ISA, where the government will boost your savings for a mortgage deposit by 25 per cent. The maximum government bonus you can receive is £3,000.

Shared Ownership, where you buy between a quarter and threequarters of a property and have the option to buy a bigger share in the property at a later date.

The Help to Buy – equity loan scheme, where the government lends you up to 20 per cent of the cost of your newly-built home, so you’ll only need a five per cent cash deposit and a 75 per cent mortgage to make up the rest. You won’t be charged loan fees on the 20 per cent loan for the first five years of owning your home.

Franz Muehlthaler, mortgage adviser with Holroyd Miller Properties in association with Reach 4 Mortgage Solutions and the Mortgage Advice Bureau.