January 2015 has seen something of a surge in buy-to-let remortgage activity, despite a slump in mortgage lending—including buy-to-let purchase lending—overall.
The Council of Mortgage Lenders recently reported that gross mortgage lending fell in both monthly and annual terms in January, propelled by a slump in house purchase lending that was more pronounced than is typical for the season. Even buy-to-let lending for house purchase fell, whilst gross BTL lending increased only modestly.
Lending for buy-to-let remortgages, however, shot upwards dramatically. In both nominal and value terms, BTL remortgage lending is at its highest level in 25 months of record-keeping by the CML. This has helped remortgages account for almost three fifths of buy-to-let lending overall; the highest proportion recorded by CML .
This may not indicate a long-term trend; indeed, the very latest reports for February suggest that purchase activity has bounced back . Nevertheless, the market share of remortgage lending has been trending upwards over the past two years, and after a notable slump in the middle of 2014, it appears to be once again on the rise.
This is, of course, not a typical year. A general election is on the way, and the current political climate has an unquestionable part to play in apparent buyer reticence. The property market is a huge issue for all parties, and with uncertainty over who will be at the parliamentary helm come May, many prospective purchasers may be deferring the decision to buy for a few months.
This being the case, it is possible that the newest figures for February indicate little more than a traditional seasonal upswing. Further reports will no doubt give us a more comprehensive picture.
Inflation and the economy
Current economic factors are no doubt also contributing to the slowdown in purchasing activity. Consumer price index (CPI) inflation in the 12 months leading to January was just 0.3%, its lowest recorded level up to that point, and the most recent figures for February show that inflation has now come to a stand-still .
Because inflation both erodes the value of debt and increases the value of assets and savings over time, level or negative inflation is concerning for mortgage borrowers and property investors alike. The chance of a period of deflation around the corner could well deter would-be investors, and encourage existing landlords to switch to the cheapest rate available in order to minimise the negative impact of their debt.
It is worth acknowledging, however, that the price of all goods measured by the CPI has not dropped. In fact, ‘core’ inflation—the cost of goods excluding those subject to volatile price movements—remains positive, as does the retail price index (RPI) for February 2015 . The downward pull has come largely from food and fuel prices, which in February fell to their lowest recorded level and collectively contributed a 0.9 percentage point drop to overall inflation.
In its quarterly inflation report for February 2015, the Bank of England acknowledged the possibility of negative inflation, but also drew a strong distinction between a “temporary period of falling prices” and “persistent” deflation , which the UK last experienced in the 1920s and 30s.
In short, whilst the transitory price movements of some specific goods and services might continue to fall, there is yet no indication that core prices will follow suit. On the other hand, the benefit of low inflation—low interest rates—looks set to continue, with commentators predicting an eventual rise as late as a year and a half from now, and a possible further cut in the interim .
All of these things considered, it is quite possible that January’s downturn in purchasing activity was merely a temporary blip, and that once the dust from the general election has settled the market will return to the strong upward trajectory it enjoyed last year.
Written by Ben Gosling for Commercial Trust Limited©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law, always seek professional advice.