The proportion of landlords extending their portfolios rose sharply this quarter from 37% to 42%, while the number of people buying their first investment property declined from 30% to 27%.
Remortgages arranged by brokers and mortgage advisers have fallen slightly, from 27% of the total last quarter to 25% this quarter.
The long-term trend of landlords extending their portfolios has been generally upward over the past two years or so, rising from 35% in September 2002 to 42% now, while people purchasing their first investment property have dwindled from almost 43% in June 2002 to 27% now.
Paragon Mortgages’ managing director John Heron comments: “The typical landlord is becoming more experienced and is more likely to be adding to his buy-to-let portfolio than buying his first investment property – contrary to what some commentators are suggesting. This growing level of expertise is welcome from the lender’s point of view as it makes buy-to-let business safer and more sustainable, particularly as a landlord will only buy an additional property if he is having a satisfactory experience with his existing portfolio.”
He continues: “As a lender, we are more cautious in our approach to ‘novice’ landlords, ensuring that they have adequate financial means to repay their mortgage even if they encounter void periods. Once landlords have a track record of satisfactory tenancies, we look at the current and projected future cashflow of their private rental business in order to service their debt. This approach protects both the investor and the lender, and is one of the reasons why arrears on buy-to-let loans are consistently lower than on owner-occupier mortgages.”
In the mortgage market as a whole, brokers continue to report a shift in borrowers’ preferences away from fixed rate products and towards base rate trackers. Almost 40% of borrowers were selecting fixed rate as recently as June last year – although this was well below the highs of over 55% seen in early 1998. Fixed rate has now fallen to 29%, down from 33% three months ago. This quarter, base rate trackers account for 35% of mortgages arranged, up from 31%, making this the most popular interest type.
John Heron comments: “In an environment of rising interest rates – and where further increases are expected – you might expect a growing preference for fixed rate deals so that borrowers can lock in their borrowing cost. In fact, the opposite is true: increasingly borrowers prefer the greater flexibility and transparency offered by tracker products and clearly don’t believe that rates will rise sharply over the coming months.”
As last quarter, many borrowers remortgage in order to release equity for the purchase of a second home – this accounting for 21% of remortgages both this quarter and last quarter, compared with between 10% and 14% throughout 1998, 1999 and 2000.
Q1 2004 saw a slight cooling in the level of business activity reported by brokers, after a very busy Q4 2003, in which 32.4 loans were arranged. The number of mortgages arranged by brokers this quarter was 30.1, the same number as in Q3 2003. While it represents a decline as compared with Q4, it is nonetheless 15% higher than a year ago.
In terms of the future, mortgage advisers remain confident, expecting to do 5.4% more business in Q2 as compared with Q1. If achieved, this would bring the total number of mortgages arranged to 31.7.
John Heron explains: “2003 turned out to be a very busy year for the mortgage market, driven by particularly high levels of remortgaging as people took advantage of attractive mortgage deals. Inevitably, things had to cool off a little, and we’ve seen a slightly lower level of mortgage activity since New Year. However, as the housing market continues to pick up and people buy properties in the Spring, advisers expect to see renewed growth in their business next quarter.”
