What’s Behind the Fall in BTL Mortgage Market Valuations?

The introduction of the Government’s new stamp duty surcharge for property investors has been in place for over a year now. We think that makes now as good a time as any to assess what impact it’s had on the Buy-to-Let (BTL) investor market.

And, as many of you might expect, it’s not the best of news.

“The 3% BTL stamp duty surcharge that came into force in April 2016 was widely expected have a big impact on property investor’s decisions, and figures show it has,” said Wimbledon estate agent, Robert Holmes. “But, we suspect few people expected the size of the impact it would have, least of all the Government”.

Slump in BTL Surveyor Activity 

Connell Surveys & Valuations regular survey shows that BTL valuations and surveys made up just 7% of surveyor activity in April. That’s 6 points below the five-year average level of activity in the sector and below levels achieved a year earlier, when the surcharge was first introduced, according to the report.

The further drop in BTL property valuation and surveyor activity is likely driven, not only by the stamp duty surcharge, but the phasing out of mortgage interest tax relief, too, that has recently begun. And, with mortgage interest tax relief to be abolished in another two years, it’s unlikely there will be much recovery in the BTL purchase market in the next few years.

An area that did show an increase was BTL re-mortgages. Just like in the home-owner occupier market, owners are taking advantage of the low level of mortgage interest rates ahead of any future Bank of England (BOE) rate hikes. BOE data shows the average 75% LTV BTL mortgage interest rates hit a record low 2.64% in April 2017.

“The current picture of the BTL market is similar to that of the owner-occupier purchase market,” said Assetgrove. “But, when it comes to making new purchase, there are fewer BTL buyers out there and that’s not something that’s likely to change anytime soon.”

BTL Mortgages Slump Too

Where BTL mortgage valuations have slumped, it stands to reason that mortgage activity has declined too. The latest Council of Mortgage Lender (CML) mortgage figures, confirm that to be the case.

According to the CML, just 18,100 new BTL mortgages were secured in the first quarter of 2017. In the first three months of 2016, lenders actioned 49,100 new BTL mortgages. BTL re-mortgage activity was also slower, but the difference was less stark. Where there were 48,000 BTL re-mortgages in Q1 2016, there were just 5,000 fewer between January and March this year.

As we said at the start, the introduction of a 3% stamp duty surcharge for buyers of a more than one property was always going to make BTL investors think twice before making a purchase. But, the sheer size of the drop is surely bigger than many expected.

“It goes to show that when tax changes are made they can often impact more people than the Government ever expected” said M&M Property. “Even while mortgage rates are low, there’s no sign in sight for a recovery of BTL purchasing activity and there likely won’t be until further tax changes are made.”