BTL Lending Surge Boosts Mortgage Lending Growth in March

Mortgage lending across the UK in March hit the highest level in eight years according to the British Bankers Association (BBA) while a similar survey by the Council of Mortgage Lenders (CML) reported the highest level of gross mortgage lending for March since 2007.

The reason behind the surge? You guessed it, Buy-to-Let lending. In the final month before the new Stamp Duty Land tax rules for owners of more than one home came into force, investors did their best to make their purchases quickly and beat the new rules.

Specifically, the BBA – whose data measures activity at 21 UK ‘high street banks’ – said that £17.1 billion of mortgage lending had been conducted in March. A 64% increase from gross mortgage lending in March 2015 and up from £13.2 billion in February

The CML, meanwhile, estimates £25.7 billion of mortgages had been released in March this year, up 43% from February’s £18 billion and 59% higher than £16.2 billion in March last year.

Both groups said that a surge in Buy-to-Let mortgages ahead of the new tax rules was at the root of the sudden, sharp rise.

“A surge in buy-to-let and second home buying ahead of the new stamp duty surcharge in April led to a sharp rise in March’s gross mortgage borrowing as people brought transactions forward,” said the BBA’s chief economic adviser Dr. Rebecca Harding said.

CML economist Mohammed Jamei said: “The distortion caused by this stamp duty change appears to be larger than any previous stamp duty change we’ve seen.”

While the increase in Buy-to-Let activity appears to have been larger than anticipated, what does it all mean for the future. Will BTL investors simply stop buying new properties and how will lenders increase their business going forward?

The answers to these questions will only be learnt in the coming months and years. However, while economists are of course expecting mortgage lending, particularly to BTL investors, to slowdown, the outlook for the housing market as a whole remains pretty positive.

“There will now highly likely be an appreciable easing back in buyer interest from the buy-to-let and second house buyers now that the April rise in Stamp Duty has kicked in,” said Dr. Howard Archer, UK and European economist for HIS Global Insight. “Nevertheless, we expect housing market activity to hold up reasonably well as buyer interest is supported by high employment and decent purchasing power, as well as the probability that interest rates will not rise for some considerable time to come (and highly unlikely in 2016).”

If housing activity and prices do continue to rise, then expect further reports and comments from the Bank of England, the Financial Policy Committee and the Prudential Regulatory Authority to help ensure another ‘bubble’ isn’t on the way.