Gearing Reaches Record Low for Property Investments in 2017

Landlords are continuing to reduce borrowing for property investments as levels of gearing fell to an all time low in 2017.

Paragon’s latest PRS trends report found that the average LTV of investment property portfolios was just 35 per cent in Quarter 4 of 2017, the joint lowest level recorded in over 15 years. Recent changes to fiscal policy and regulator adaptations have dampened motivation amongst landlords to take on higher LTV buy to let mortgages.

However, landlords appeared confident regarding the concept of coping with increased outgoings. 51 per cent said that any decision to refinance properties would not be dependent on mortgage interest rates. Of the remaining 49 per cent, the average mortgage interest rate at which landlords would consider selling properties is 5 per cent.

43 per cent of those who responded said that any decision made to increase rent was not dependent on mortgage interest rates. 51 per cent said that any decision to increase rents would also not be dependent on mortgage interest rates.

Managing Director of Mortgages at Paragon, John Heron, said: ‘Contrary to the view held by some, there is strong evidence that gearing levels across portfolios are very low in the buy-to-let sector, with a peak of 43 per cent LTV across all types of landlords in the last 15 years. Since that peak in 2012, gearing has been on a downward trend and currently sits at an all-time low of 35 per cent.’

He continued: ‘In response to fiscal changes over the last two years, landlords are clearly less willing to take higher loan-to-value mortgages and borrow more, whilst regulatory changes, though welcomed by lenders, have constrained the market in its ability to offer higher LTV mortgages. There is no evidence to suggest lending to landlords has been anything other than sustainable. With low levels of gearing landlords appear well positioned to withstand the higher interest rates that the markets are anticipating, which is good news for buy to let and the wider private rented sector.’

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