Have the Banks Overreacted Toward Buy-to-Let Landlords Following Brexit?

Although Britain has not yet triggered Article 50, which gives the country two years to negotiate an exit from the EU, banks have reacted to the Brexit by curbing lending for buy-to-let landlords. But have they overreacted?

Although landlords may be concerned about the future of property investment following changes by the banks, one expert believes it is all a knee-jerk reaction.

Have the Banks Overreacted Toward Buy-to-Let Landlords Following Brexit?

Newcastle BS, Barclays, Foundation Home Loans and TSB have all recently announced that they are trying to limit buy-to-let lending, with TSB increasing its rental coverage ratio by 20% to 145%.

For loan-to-value (LTV) ratios up to 65%, the rental cover calculation will be 145% or 5% of the pay rate, whichever is higher. For LTVs between 65.01-75%, the calculation will be 145% or 5.5% of the pay rate.

However, other banks have shrugged off Brexit concerns and remain committed to their lending practices, despite warnings over risky loan exposure following the Brexit.

Shawbrook, Metro Bank and Virgin Money have all reported strong growth for the first half of the year, thanks to a surge in lending to both individuals and companies.

A recent forecast from estate agent Countrywide says that house prices will drop by just 1% in 2017, before rising by 2% in 2018. However, the firm believes that the cooling market is not just down to uncertainty about Brexit and has highlighted the impact of the Stamp Duty surcharge on the industry.

According to Peter Armistead, of Armistead Property, banks have overreacted to the Brexit news, at a time when we do not know what the consequences of the vote will be for buy-to-let landlords.

He says: “It is worth taking all the scaremongering with a pinch of salt. While the future for the buy-to-let market looks certain, what is clear is that mortgage interest rates remain very attractive. Buy-to-let investors who are in a position to buy now could benefit from not only low mortgage rates, but lower property prices.

“The buy-to-let market is strong and continues to provide essential housing for a growing UK population. It is estimated that two million Britons are now private landlords, collectively renting out five million properties. With rising demand for rental property and a growing shortage of accommodation, the buy-to-let market will continue to give a good return on investment.”

He continues: “Even before Brexit, the buy-to-let market was slowing, due to the new tax measures introduced by the chancellor. Although the Government is trying to curb the buy-to-let market, property investment is robust in the long term. However, lending may be further constrained and the banking industry may be hit harder in a few years.

“So far, figures from the Halifax and Nationwide show a slowdown from earlier in the year, when many investors rushed to get deals done before April. However, the market has not seen the type of falls that project fear was predicting before the referendum. The slowdown is pretty much in line with seasonal expectations following the bull market of January to April 2016.”

Armistead adds: “The market does not like uncertainty and we may have several years of this, along with potentially more issues to deal with.”