Stampede of Property Investors Drives Mortgage Lending to 2008 Levels

Bank report new year rush of buy-to-let investors, looking to avoid April tax rises

Emma Simon 24 February, 2016 | 12:40AM
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Property investors keen to avoid higher stamp duty charges have helped to drive mortgage lending up to an eight-year high.

Figures released by the British Bankers’ Association (BBA) show that in January gross mortgage borrowing rose to £13.6billion – its highest level since mid-2008, and an increase of 38% year on year.

The BBA said that the number of mortgage approvals had increased by a third, with mortgage for house purchases rising by 27% and remortgage deals up by 42%.

Richard Woolhouse, chief economist at the BBA said this sharp increase appears in mortgage borrowing appears to have been driven, in part, by buy-to-let landlords, and second home owners looking to buy ahead of stamp duty changes in April.

Property Bubble

In last year’s Budget the Chancellor George Osborne announced that most home buyers in England and Wales would face a 3% surcharge on stamp duty charges on second home purchases from April 2016.

Property experts said this change has caused a frenzy of activity in the mortgage market, leading to fears of an imminent property bubble.

Rob Weaver, director of investments at property crowdfunding platform Property Partner said: “This sharp spike in January was almost certainly a result of the stampede to beat the buy-to-let duty deadline.”

Competitive Buy-to-Let Mortgages

Charlotte Nelson finance expert at Moneyfacts pointed out that the mortgage market was being supported by low interest rate and competitive deals, on both residential and buy-to-let mortgages. She said the average two-year fixed-rate mortgage has fallen from 3.14% to 2.56% in the space of a year.

“Buy-to-let lending has been similarly impacted with the average two-year fixed rate for buy-to-let mortgages falling from 3.5% to 3.33% as lenders compete for landlords’ attention ahead of the stamp duty changes in April.”

This new stamp duty charge is expected to raise an additional £1billion for the Treasury by 2012 – but organisations representing property investors and amateur landlords have argued that this could “choke off” investment in this sector.

The higher stamp duty charges aren’t the only changes designed to cool down an overheated property market. The Government has also announced the phased withdrawal of mortgage interest tax relief, which could have a significant impact on the profits of many buy-to-let investors.

Weaver said that a recent survey found that 27% of landlords had little or no awareness of the changes coming. He said those rushing to invest in the property market now “needs to be going in eyes wide open and with complete knowledge of the forthcoming tax changes, and how they will impact their portfolio in the short and medium term.”

Will House Prices Continue to Climb?

However others say that even with these changes, demand will continue to outstrip supply in the property market – which will continue to push house prices higher.

Samuel Tombs, chief UK economist for Pantheon Macroeconomics said: “Looking ahead, we expect [mortgage] approvals to remain on an upward trend. Consumer confidence is high, real income gains remain strong and mortgage rates are set to fall again in response to the decline in wholesale funding.”

As he pointed out enquiries at estate agents have been rising quickly and point to mortgage approvals increase 5% over the next three months. “With the active supply of homes on the market close to record lows, house prices look set for very strong gains,” he said. 

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Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for

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