Lloyds cuts landlord loans amidst buy-to-let bubble fears
Wednesday 02 March 2016
Landlords could be dealt a blow after it was announced that Britain's biggest mortgage firm plans to reduce its lending in the buy-to-let market.
Lloyds Banking Group has made the announcement just weeks before the Government plans to implement a 3 per cent hike in stamp duty for those with second homes.
Experts already suggest the market, which is worth an estimated £200 billion, could be put under threat thanks to Chancellor George Osborne's ill-thought-out proposals.
But the latest move by Lloyds is certain to send concerns soaring among those still hopeful of buying a buy-to-rent second property.
Currently, the bank's lending is continuing to grow and is up 4 per cent on last year to a huge £55.5 billion.
Chief executive of Lloyds Banking Group, Antonio Horta Osorio, said the move to reign in lending was to maintain profits.
Lloyds fears mass buy-to-let sell-off could lead to huge profit losses
Following the predictions by the National Landlords Association (NLA) that up to 1 million second-home owners could ditch their homes by 2021, the bank is worried that landlords trying to offload their properties could lead to house prices plummeting and banks being hit with huge losses.
"We believe that in a low-growth environment, where most growth is coming from buy-to-let, which is growing at 12 per cent, the prudent and appropriate combination is to protect margins," said Mr Osorio.
Lloyds' decision comes at a time when the number of investors is surging, many of which are thought to be house hunters desperate to secure new properties before 1st April.
This is when the new stamp duty charges come into force.
Other lenders willl continue providing buy-to-let mortgages
However, the good news for landlords is that other banks have not suggested they will follow Lloyds' lead.
In fact, some are confident of capitalising on last year's promising statistics and are continuing to lend.
Royal Bank of Scotland recently said their lending to landlords had risen by 20 per cent in the last year, from £15.2 billion to £18.5 billion, as it attempts to take a bigger market share.
Plus, there is no shortage of competing companies still keeping a foothold in the market.
Last year it was even reported that the choice for prospective landlords was 'exploding'.
By August 2015, the number of buy-to-let mortgages available broke the 1,000 mark, the first time this had happened since April 2008.
Rates were regarded as 'extremely competitive compared to previous years' according to finance website, Moneyfacts, with the typical buy-to-let mortgage in August 2015 being 3.6 per cent compared to 6.84 per cent in August 2008.
Fixed-rate buy-to-let mortgages also dropped sharply from 7.34 per cent to 3.8 per cent, while landlords were also urged to take advantage of low-cost two-year fixed rate deals at just over 2 per cent.
It's clear that despite Lloyds' decision to pull back, there is obviously still confidence from other mortgage lenders.
In saying this, the number available is certain to fall when the stamp duty rise comes into play, coupled with the phasing in of the changes to the mortgage interest relief.
Landlords will be left out of pocket with the changes, and demand for buying second homes is likely to dip.
There is still time for Osborne to u-turn over buy-to-let tax changes
However, hope springs eternal, and there is still time for Osborne to realise the havoc his proposals looks set to wreak.
The growing number of influential people criticising the plans - among them Tory peers, MPs and even former Prime Minister's wife Cherie Blair - surely they can't have gone unnoticed by the Chancellor, or is he simply too stubborn to back down?
With less than a month to go before the stamp duty rise is introduced, time is beginning to run out for Osborne to see the errors of his ways.
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