Landlords 'not worried about higher interest rates'
Landlords have been deterred from seeking higher loan-to-value (LTV) mortgages by lower returns on investment in 2017, but the majority will not seek to sell up if interest rates rise, a survey has revealed.
Paragon's latest PRS Trends report found that 51 per cent of landlords will not be influenced by mortgage interest rates when it comes to making decisions about whether to keep or offload properties. The firm said this reflected a widespread confidence in the sector that landlords could cope with any increases in outgoings.
This is reflected in the fact that nearly half (43 per cent) said any decision to increase rents would not be linked to mortgage interest levels.
Of those who would sell, the average mortgage interest rate that would prompt a decision to divest would be five per cent, the survey found.
The average LTV of investment portfolios was 35 per cent in the fourth quarter of 2017, the lowest in more than 15 years.
Such a low figure may come as a surprise to some, according to Paragon's managing director John Heron.
He 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."
The mortgage interest rates landlords face will be partially affected by the Bank of England base rate. Having been slashed to 0.5 per cent in March 2009 in the wake of the global economic crisis, this remained unchanged until the summer of 2016, when it was halved to 0.25 per cent amid deep economic fears in the wake of the Brexit vote.
That cut was reversed in November in response to above-target Consumer Price Index inflation, but the Bank of England does not expect another increase until the latter part of 2018.