Like most industries, the buy to let mortgage market has certainly not escaped the adverse impact of the pandemic, with one of the most significant differences being a reduction in product availability and more recently, a rise in down valuations.
From summer 2020, the stamp duty holiday certainly spurred activity in the market from both homeowners and investors. Prior to Christmas, there was a notable flurry of activity, with people eager to move quickly and complete before the deadline. We largely anticipated this level of interest to continue into the New Year. However, the latest lockdown and increasing likelihood that the stamp duty holiday will not be extended has seen interest peter out.
From the beginning of the year, investors looking for a property knew they were unlikely to complete before the 31 March stamp duty deadline. Most are now prepared to wait to see if house prices come down, which in some cases may offer a bigger saving than that of the stamp duty holiday.
The projected softening of house prices following 31 March has been the catalyst for a surge in down-valuations. This is coming as an unwelcomed surprise to many investors who have been reading that house prices have risen on average by 7.6 per cent.
Last week, we had our worst day for down valuations that I can recall. As an example, a buy to let property client wanted to re-mortgage. His property is in excellent condition, has never experienced void periods and is situated along the busy north-circular. The surveyor declined the property on the grounds that it did not have a drive. Another one was turned down because it was in a multi-unit block and close to an industrial area, therefore both concluded that demand for the properties would be too low.
Property prices are obviously very difficult to predict, and a property is only ever worth what someone is prepared to pay for it, but who would have thought that house prices would have risen the way they did in 2020? It is frustrating for property owners who have been presented with evidence of what their house is worth in the current market, based on its qualities and appeal, to then be told otherwise.
One of the other significant impacts to the buy to let mortgage market has been reduced choice in product and therefore less attractive rates for both personal and limited company applicants.
As an example, the rate on a current re-mortgage on £105,000 for a limited company, based on a 5-year fixed rate with 60 per cent LTV, comes out circa 3.3 per cent. Using the same figures for a personal loan would be circa 1.6 per cent.
Given that the Bank of England (BoE) made two emergency cuts to its Bank Base Rate, taking it from 0.75 per cent to the all-time low of 0.1 per cent back in March, it feels that lenders have been reluctant to adjust their offerings to reflect the reduction. With that said, as the vaccine continues its consistent roll out, there are green shoots of hope with positive sentiment slowly returning and more lenders re-joining the buy to let market. My best advice to investors right now is to have patience. Both lenders and surveyors are adapting to a fast-moving market and most are doing so very well.