Figures recently show a significant surge in buy-to-let lending in the late stages of 2015. Mortgages granted to buyers of residential investment properties in November were up by more than a third compared to the same time in 2014.
Buy-to-let lending in November was down 6% on the previous month, but still up by 35% on November of the previous year, compared to 9.3% for the mortgage market as a whole. In total, 23,300 loans were granted to fund buy-to-let investment. This may come as a surprise to many, given the number of tax reforms announced last summer that will constitute a crackdown on the buy-to-let sector over the next few years.
In the July budget, George Osborne announced a number of measures and changes affecting the way second homes and property investments are taxed. These were designed to tackle what the government perceives as a property market that favours landlords over owner-occupiers. The changes, due to be rolled out in stages and should be fully in force by 2020, will severely impact the profitability of buy-to-let for many investors, primarily those who are higher rate taxpayers, and could leave some with unprofitable or even loss-making properties. Naturally, this led to predictions that existing landlords may cease buying additional properties, and that both established investors and would-be new landlords will be put off of making further investment purchases.
The fact that the number of buy-to-let loans advanced in November showed such a significant year-on-year increase seems at first to run contrary to such predictions. However, the rise in activity may be partially a result of the changes. A separate, more recent measure announced is an imminent increase in stamp duty on second home purchases. Investors who fall outside the scope of the other reforms or who have a strategy to weather them may be rushing to get purchases completed before this takes effect.
Perhaps more significantly, it is reported that the larger part of buy-to-let lending activity is made up of landlords remortgaging properties they already hold. This could be a direct response to one of the biggest and most impactful of the impending reforms. For many landlords, the most costly tax change due to be rolled out is the loss of mortgage interest relief. In order to reduce the impact of such a change, many landlords are looking to take out new mortgages, taking advantage of continued low rates and locking themselves into such a rate for a longer period in order to keep their mortgage as manageable as possible.