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There's been plenty of good news hitting the buy-to-let (BTL) market recently. Not only has the value of landlords' investment property hit a record high, but figures from Moneyfacts.co.uk revealed that the average rate for a five-year BTL mortgage has fallen to the lowest on record, so it may come as little surprise to learn that landlords are hastily reviewing their options, with remortgaging high on the agenda.
New figures from Paragon show there's been a sharp surge in remortgaging activity of late, so much so that it's reached an all-time high! The data reveals that the proportion of landlords looking to remortgage has hit its highest level on record, accounting for 57% of all BTL business dealt with by the provider between July and September this year, up from 49% in the previous three-month period.
Yet this means that other business has faltered, particularly from first-time landlords, who now account for just 10% of BTL mortgage applications (down from 14%). Similarly, the proportion of those seeking mortgages to expand their portfolios fell from 23% to 19%, as landlords focus on boosting returns from their current portfolios rather than looking to buy additional properties.
Much of this has been blamed on the impact of various tax and regulatory changes that have been placed on the sector in recent years. The changes have had a direct impact on BTL property purchases (which have plummeted since the stamp duty surcharge was introduced) and on landlord profitability (which has been particularly impacted following tax relief and portfolio rule changes), with many now looking to lock in to lower finances costs in order to mitigate some of those changes.
This in itself goes a long way to explaining the latest boost in buy-to-let remortgage activity, and it's becoming a recurrent theme. Paragon's data reveals that the proportion of landlords remortgaging has outstripped those seeking funds for portfolio expansion since 2015, when significant tax changes were first announced, and has risen ever since.
"Landlords are investing less in the Private Rented Sector which, in time, is going to make it more difficult for tenants to find a property at a rent they can afford," said John Heron, Managing Director of Mortgages at Paragon. "This is clearly a response to the increase in costs that landlords face following changes to stamp duty and tax relief on finance costs. It's no surprise therefore to see that landlords are taking the opportunity to reduce their mortgage finance costs as one part of their strategy to mitigate the impact of higher taxation."
Now, six in 10 intermediaries say the main reason that landlords remortgage is to secure a better interest rate, and given that long-term BTL mortgage rates are now at a record low, it shouldn't be too difficult to achieve. Some landlords are even looking at alternative ways to make their properties work harder, such as by forming a limited company, in order to reduce the impact of some of the tax changes.
Find out how to set up a limited company
Providers are accommodating, too. Additional data from Mortgages for Business shows that the number of BTL lenders who are now lending to limited companies has risen by 47% over the past year, with the number of mortgages available more than doubling over the same period, with landlords borrowing via a limited company now having an average of 628 mortgages to choose from, up from 263 a year ago.
Perhaps understandably given such cost pressures, not to mention the wider uncertainty in the market at present, the vast majority of landlords (across the wider market, not just those borrowing via a limited company) are opting for fixed rate buy-to-let mortgages. The figures revealed that 96% of landlords opted for such a deal between July and September this year, up from 93% in the previous three-month period, with 73% of those opting to fix for five years.
So, are you looking to review your mortgage obligations? The landscape may be tricky at present, but that's all the more reason to get the best buy-to-let mortgage possible, and remortgaging to a new deal could help you navigate the choppy BTL waters for years to come.
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