The first signs that the buy-to-let boom could be coming to an end have emerged in figures from the Nationwide building society, which showed that lending to landlords went into the reverse over the past six months.
Nationwide’s buy-to-let subsidiary, the Mortgage Works, lent £2.8bn in the six months to September 2016, down from £2.9bn in the same period a year earlier.
The lender cited new affordability tests brought in ahead of changes to tax relief from April next year, which have made it more difficult for potential landlords to snap up properties.
“The buy-to-let sector is going through a period of substantial change resulting from new rules on landlord taxation [and] guidance on underwriting and affordability standards,” said Nationwide chief executive Joe Garner.
Nationwide told buy-to-let borrowers in April that they could only borrow up to 75% of a property’s value, down from 80%, and that the rental income had to be at least 145% of the monthly mortgage repayment, up from 125%. In higher priced property markets, such as London, the new tests have made buy-to-let borrowing prohibitively expensive.
Santander and Barclays have already announced tougher rules on buy-to-let lending, and Lloyds Banking Group subsidiary Birmingham Midshires, the biggest lender to landlords, is to introduce new criteria for higher rate taxpayers over the next few weeks.
Nationwide said UK house prices should remain subdued over the coming year as the Brexit process unfurls, but it does not predict a fall. “A less certain economic outlook may soften demand but prices will continue to be supported by low interest rates and limited supply of new homes,” it said, predicting rises of between 3% and 6% over the next year.
The society’s underlying profits dropped significantly in the half year from £802m to £615m, a fall of 23%. It blamed a fall in net interest income, stiff competition in the mortgage market and rising costs.
Nationwide, which is a mutual and does not have to report to shareholders, said it consciously took the decision to lower profits so it could “stand by our members”.
“We are motivated by a sense of social purpose, and we exist to serve our members and the wider society,” said Garner.
The society said that in the six months to September its gross mortgage lending was up 17% to £17.5bn, with its net lending hitting a record of £6bn. It said it accounted for one-third of net lending in the UK over the past five years.
Despite record low interest rates, savers have continued to increase deposits at the society. It said member balances increased by £4.7bn, compared with £2.6bn in the same period last year, and that it pays about 0.25% more interest on average compared with rivals, worth £380m extra to customers.
New rules on seven-day switching have helped the society to challenge the traditional high street banks. Nationwide opened 377,000 new current accounts, up 36%, giving it a 15.8% market share of new account openings in the UK.
It is also trialling new branches in communities left without banking services, with a new opening in Glastonbury where screens will enable customers to talk to remotely based advisers.
Amid the widening debate over precarious working conditions for millions of people in modern Britain, the society said that apart from being one of the earliest to promise a “living wage” to all staff it is also providing a “living pension”. Staff who pay in 7% of salary into their pension will receive a 16% contribution from Nationwide. Most standard pension schemes offer a basic company contribution of about 6% of salary.
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