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2017 year in review: The buy-to-let market

It’s been a tough few years for landlords, with a layering of changes in fiscal and regulatory policy targeting the buy-to-let market since 2015.

This has resulted in many landlords having to rethink their strategy and, in some cases, reduce their exposure to residential investment property. But, whilst morale amongst landlords has remained low throughout 2017, performance indicators across the whole mortgage market have shown resilience underlining the ongoing high demand for privately rented homes.

Here, we review the key moments from 2017 in the buy-to-let market.


The turn of the year saw the tightening of regulations in the buy-to-let market, with phase one of the Prudential Regulatory Authority’s (PRA) new underwriting standards coming into effect. This introduced minimum affordability requirements on for buy-to-let landlords. The market quickly adapted to these changes as in most cases lenders already applied affordability tests that met or exceeded the minimum standards. The improved discipline in the market was largely welcomed.


Two months before the beginning of a four-year phasing-in of the Government’s reduction in tax relief on buy-to-let mortgage interest for landlords paying higher rates of tax, attention increasingly turned to landlord strategies to cope with the changes. According to Paragon’s Q1 2017 PRS Trends report, the five most common strategies reported by the higher rate tax payers amongst a panel of 203 landlords were: increased rent (32%), sell some properties and not buy any more (19%), move ownership into a limited company (12%), maintain current portfolio and not buy any more (10%), and repay some or all buy-to-let mortgage debt (6%).


The Spring budget; the last chance before implementation for the Chancellor, Philip Hammond, to reverse changes to tax relief for landlords. But there was no let-up on the measures and concerns that changes to self-employed National Insurance (NI) and a hardening of government policy towards the self-employed may impact landlords in the long term. A week later, Hammond U-turned on the changes to self-employed NI.


Landlords braced for impact as the long-awaited tax relief changes took effect. According to Paragon’s PRS Trends Report for Q1 2017, landlord optimism had remained stable in the run up to April, with Paragon’s Managing Director – Mortgages, John Heron warning: “Landlords will not be fully impacted for some years yet and, whilst we have been able to track a modest recovery in confidence since 2015, the sector is still some way off its peak; the PRS is finely balanced and will remain so for some time.”


Research released in May suggested that landlord motivation was suffering as a result of the phased removal of tax relief. Buy-to-let’s share of property valuations carried out by estate agency Connells dropped to 7% in April, substantially down from the five-year April average of 13%. Data from the Council of Mortgage Lenders (CML), showed mortgage activity in the UK buy-to-let sector halved since the introduction of a stamp duty surcharge one year earlier, in April 2016.


Two months on from the phased introduction of tax relief changes for buy-to-let landlords, the CML downgraded its buy-to-let lending forecasts for 2017 and 2018, with expected buy-to-let lending of £35bn in 2017 and £33bn in 2018, a decrease from £38bn in each year, forecast in December 2016.


In July, buy-to-let landlords were being encouraged to negotiate new mortgage deals before phase 2 of the PRA regulations were introduced in September. Following on from the tightening of affordability requirements in January, phase two required all lenders to implement more thorough underwriting of portfolio landlords with four or more mortgaged properties. Many lenders left it very late in September to implement the changes causing some consternation in the intermediary sector.


With the trade media reporting a “price war” for buy-to-let mortgages, there was a boost for landlords with buy-to-let fixed rates falling further, according to data from mortgage technology provider Mortgage Brain. The data showed further rate and cost reductions on most mainstream buy-to-let products in the previous three months. The cost of a two-year fixed buy-to-let purchase product, for both 60% and 70% loan to value were now 4% lower than in May. Mortgage Brain said this reduction equated to an annual saving of £342 for a 60% loan to value mortgage and £306 for a 70% loan to value mortgage.


Good news for buy-to-let investors as Moneyfacts revealed the results of its latest research, showing that the number of buy-to-let mortgages available reached its highest level in almost a decade, despite the recent changes impacting the market. The figures, taken from the Moneyfacts UK Mortgage Trends Treasury Report, showed that the number of buy-to-let products increased by 7% in just one month to total 1,725, up from 1,613 in August and the highest figure seen since December 2007, when 1,942 products were available. Elsewhere, at the end of September, PRA phase two officially came into effect for all lenders.


As buy-to-let mortgage rates began to rise from record lows, the biggest news in the buy-to-let market in October was undoubtedly the announcement that Paragon had combined its Mortgage Trust and Paragon Mortgages buy-to-let product range under a single, refreshed Paragon brand. Paragon Mortgages products were migrated to a Paragon ‘portfolio’ range, tailored to professional landlords who own four or more mortgaged properties, and those operating as limited companies and limited liability partnerships. Mortgage Trust products became Paragon ‘non-portfolio’, designed for landlords with up to three mortgaged properties or consumer buy-to-let customers. The move was part of a wider exercise to simplify and align branding across Paragon’s different product lines, reflecting Paragon’s ongoing development as one of the UK’s fastest growing banking groups.


Landlords were pessimistic in the build up to November’s Autumn Budget Statement, with a survey by Simply Business finding that 77% of those asked did not think the it would be good for landlords. Despite Sajid Javid, Secretary of State for Communities and Local Government, hinting at incentives for landlords who ‘do the right thing’ during his speech to the Conservative party conference earlier in the year, no such incentives were announced and the most significant impact of the Chancellor’s Budget was that buy-to-let investors who incorporated – which many did in response to the changes in buy-to-let tax relief – will face an increase in taxes when they sell their properties. Indexation, a tax relief allowing gains to be reduced depending on the duration of property ownership, will be frozen from January 2018.


The end of a slightly less turbulent year. As the market gets to grips with its various challenges, morale has slowly started to recover, with confidence amongst mortgage intermediaries reaching its highest level since 2015 as mortgage activity increased in Q3 2017, according to Paragon’s latest Financial Advisers Confidence Tracking (FACT) Index report, based on interviews with 199 mortgage intermediaries. With the full impact of phased tax changes still unknown and new affordability rules now in full swing, 2018 is set to be another fascinating year in the buy-to-let market.

Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551