BTL landlords well set to deal with interest rate rise

Buy-to-let landlords in Britain are sure to be pleased with the results of a new survey by YouGov, which suggests that they are well placed to cope with expected higher borrowing costs in the coming year.

In addition, the study found UK landlords are financially resilient, with 75% of those questioned believing they would have no problems paying their mortgage, should a 1.5% rise in the bank rate materialise.

Planning

Over 60% of respondents said that their rental income would stay above their mortgage payments if a rise was to occur, with 40% stating that they already had enough cash saved to cover increased borrowing charges.

The Council of Mortgage Lenders (CML) said that it expects buy-to-let purchases to dip in 2016, but with buy-to-let remortgaging remaining robust.

Data collated by the CML from lenders accounting f or 90% of new lending suggests that the typical stressed mortgage rate being used by the industry has risen by 50 basis points to between 5.6% and 5.7%.

Bob Pannell, chief economist at the CML, believes that landlords have a list of range of strategies for coping with increased mortgage costs. He says that these include the positive cash flow provided by rental payments and access to stored contingency funds.

Dampening

Mr Pannell also pointed out that the number of upcoming tax measures announced in recent months are likely to have a dampening effect on the sector’s future growth prospects.

‘The reduction of tax reliefs available to private landlords from 2017/18 onwards, announced by the chancellor in the summer 2015 Budget, will adversely affect the future cash flows for affected landlords,’ Pannell noted.[1]

He went on to say that, ‘landlords should be able to mitigate the direct financial impact in a number of ways,’ before claiming that, ‘the YouGov research corroborates our view that the overall impact will be to lift rents higher and to narrow the availability of homes in the private rented sector.’[1]

‘The direct effects appear modest, but are likely to be reinforced by the stamp duty changes, announced in the chancellor’s autumn statement. The rapid succession of recent tax changes also risks having a significant indirect effect on investor sentiment, altering the direction of travel for buy to let lending and the further expansion of the private rented sector,’ he continued.[1]

BTL landlords well set to deal with interest rate rise

Future

Statistics from the CML’s latest market forecasts suggest that house purchase activity from buy-to-let landlords will slip in 2016-17. With the significant lags in Government housing initiatives moving to improve further housing supply, questions are being asked about the future of rental accommodation.

‘In this context, macro-prudential intervention, if or when it is applied to buy-to-let lending, carries a significant risk of unintended consequences for the wider housing market. We will continue to work closely with the Bank of England, to reinforce its understanding of the sector and to ensure very careful calibration of any forthcoming measures,’ Pannell concluded.[1]

[1] http://www.propertywire.com/news/europe/uk-buy-let-landlords-2016010611398.html