Mortgage Gearing Low Amongst Landlords

Mortgage gearing amongst landlords remained low in the first quarter of 2017, as the average loan to value (LTV) ratio decreased by 2 per cent to just 35 per cent.

Paragon Mortgages most recent PRS Trends Report for the first quarter of 2017, based on interviews with 203 experienced residential landlords, found that 68 per cent of those they spoke to have borrowings of less than half the value of their investment property. The study also discovered that since the second quarter of 2012, average gearing has seen significant decline, down from 42 per cent, suggesting that the sector is deleveraging.

The average landlord was found to spend 30 per cent of their rental income on mortgage payments, although during the first quarter of 2017, 43 per cent claimed to spend less than a quarter.

Whilst certain sector conditions have led to subdued buying intentions, the average landlord portfolio size remained consistent with Q4 of 2016 at 13 properties. Sentiment in the private rental sector remains strong, with 46 per cent of landlords anticipating that tenant demand will rise over the next 12 months, with investors also indicating that they expect to maintain their portfolio size over the coming year.

The average value of investment property portfolios has also remained constant at £1.7 million. This follows an increase in Q4 2016 and is now reaching its highest recorded levels. This upward trend is expected to be maintained, with 25 per cent of landlords expecting value to increase in the next 12 months. In contrast, a mere 8 per cent expect to see decline.

Managing director of Paragon Mortgages, John Heron, said: ‘Average gearing is low and getting lower, and this long-term de-leveraging demonstrates just how financially conservative buy-to-let landlords are. Looking ahead, it’s realistic to expect this downward drift in gearing to continue as the PRA’s new buy-to-let underwriting standards take effect. Our PRS Trends Report indicates a resilient sector in Q1 2017 but, as the mortgage interest rate tax changes filter through between now and 2021, landlord confidence may be eroded further which could well result in a reduction in the supply of property to the sector and, in turn, higher rents.’


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