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Landlords confident of coping with rising rates as gearing reaches all-time low in Q4 2017

  • Average loan-to-value (LTV) of investment property portfolios was 35% in Q4 2017
  • That is the joint-lowest level recorded in over 15 years
  • 51% of landlords say any decision to sell properties is not dependent on interest rate

Landlords are continuing to reduce borrowing as levels of gearing reached an all-time low in Q4 2017, according to Paragon’s latest PRS Trends report, based on interviews with 201 experienced landlords.

Average LTV of investment property portfolios was 35% in Q4 2017, the joint-lowest level recorded in over 15 years, as recent fiscal and regulatory changes targeting landlords have dampened landlord motivation to take higher LTV buy-to-let mortgages.

Meanwhile, asked at what point they would need to sell properties in the event of rising mortgage interest rates, landlords appeared confident of coping with increased outgoings, with more than half (51%) of landlords saying any decision to sell properties is not dependent on mortgage interest rate.

Of the remaining 49%, the average mortgage interest rate at which landlords said they would consider selling properties is 5%.

More than four out of ten respondents (43%) said that any decision to increase rent was not dependent on mortgage interest rates, and slightly more than half (51%) said that any decision to refinance properties was not dependent on mortgage interest rates.

John Heron, Managing Director – Mortgages at Paragon said:

Contrary to the view held by some, there is strong evidence that gearing levels across portfolios are very low in the buy-to-let sector, with a peak of 43% LTV across all types of landlords in the last 15 years. Since that peak in 2012, gearing has been on a downward trend and currently sits at an all-time low of 35%.
In response to fiscal changes over the last two years, landlords are clearly less willing to take higher loan-to-value mortgages and borrow more, whilst regulatory changes, though welcomed by lenders, have constrained the market in its ability to offer higher LTV mortgages.
There is no evidence to suggest lending to landlords has been anything other than sustainable. With low levels of gearing landlords appear well positioned to withstand the higher interest rates that the markets are anticipating, which is good news for buy-to-let and the wider private rented sector.

Click here to read the full Q4 2017 PRS Trends report.

30 January 2018

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