Recent data released by UK Finance, a trade body that represents around three hundred banks and other financial service companies, shows that mortgage approval rates surged at the end of last year. 13% more mortgages were approved in November 2017 compared to the same month the previous year, suggesting an end to several sluggish months for home sales.
However, investment properties appear to be losing some of their allure following recent cutbacks on tax breaks for buy-to-let landlords. November saw 6,600 buy-to-let mortgage approvals, a 1.5% year-on-year decline. Over the past two years, the Chancellor’s budget announcements have hit owners of investment properties. The amount of mortgage interest payments landlords can offset against rental income is being gradually tapered and by 2020 the tax break will have been abolished altogether. For the coming tax year only 50% of mortgage interest payments will be deductable, 25% in 2019/20 and zero in 2020/21, though a 20% tax credit will provide a degree of relief.
The changes are having a particularly significant impact on buy-to-let landlords in higher income tax brackets, the category who most often own several investment properties, but also run the risk of pushing basic rate payers into a higher tax band.
Despite a nationwide dip in the acquisition of new investment properties, anecdotal evidence from real estate agents suggests there is significant regional variation in the trend. Quoted in The Times, Paul Smith, of the Spicerhaart real estate agency credited buy-to-let investment as a major factor in why the East Midlands was the UK region with the second highest growth in property prices – up 6.4%. He commented that strong rental yields and improving transport links were turning the region into a “buy-to-let hotspot”.
However, the general uptick in buying activity appears to be being driven most by first-time buyers. November mortgage approvals saw a 15.2% increase in this category, with 34,000 mortgages approved. UK Finance’s Paul Smee commented that he believes the recent jump in buyer activity is the result of a combination of dropping sales last year making the market more competitive and an awareness that interest rates are set to rise. This has led to buyers biting the bullet and entering the housing market now while fixed interest mortgages at historically low rates are still available.
Over the course of 2017, separate data provided by The Royal Institute of Chartered Surveyors suggested a significant drop-off in the number of agreed sales. Land Registry figures back this up with September transactions in England down 15% on the previous year. However, despite waning activity, average UK house prices still gained 5.1% in the year to November, though just 0.1% between October and November.
Regional divergence in the strength of the residential property market is significant. London and the Southeast were among the slowest regions on a year-to-year basis up to November. Prices rose 2.3% in the capital over the 12 months, though actually recorded a 0.9% October to November drop. Stretched affordability is considered the main factor.