Landlord borrowers boast 15% more equity than a year ago – almost £100,000

Buy-to-let (BTL) borrowers are seeking out mortgages with £99,914 of equity behind them: an increase of 15% or £13,289 in the last year, according to the Mortgage Search Tracker from Mortgage Advice Bureau, the UK’s best-known mortgage broker brand.

The figures suggest that equity gains from rising house prices are helping borrowers in the BTL mortgage market access better interest rates as they investigate a new purchase or refinancing their existing deal.

Using data from over 250,000 monthly product searches via price comparison and broker websites powered by Twenty7tec – a leading supplier of mortgage sourcing systems – the Tracker shows the average property value among BTL borrowers remained constant at just under £230,000 from Q4 2013 to Q4 2014.

However, having more equity behind them means the average loan to value (LTV) deal sought by BTL borrowers therefore dropped from 62.2% to 56.5%. This increases their chances of securing lower rates as they represent a more secure prospect to lenders.

Brian Murphy, head of lending at Mortgage Advice Bureau, said:

“These findings show that landlords are in an especially strong position to use their recent equity gains to negotiate a better mortgage deal. House prices have settled into a steadier pattern in recent months, but the current low rate environment offers many BTL borrowers the chance to reassess their finances.

“It means this part of the market is likely to see strong activity this year, both from people who are already involved with BTL and others who are learning the ropes. A number of mainstream lenders have increased their BTL offer already and new entrants have also arrived to boost competition.

“Lending to landlords is still a modest part of the wider mortgage market, but in terms of percentage growth, it outstripped lending for house purchases and remortgaging last year. There are certainly no signs of BTL losing its appeal.”

BTL borrowers also looking to reduce mortgage terms

The findings also indicate BTL customers are increasingly looking to borrow over a shorter period of time. Twelve months ago, 62% of BTL borrowers were looking for a mortgage term of 25 years or more. But this fell by ten percentage points to 52% in Q4 2014.

In contrast, the percentage of BTL borrowers looking for a loan of 15 to 24 years rose from 29% in Q4 2013 to 41% in the final three months of 2014. The move towards shorter mortgage terms may be a sign of more emphasis on repaying loans during people’s working lives rather than extending them into retirement.

Both BTL borrowers and homebuyers targeted similarly priced properties in Q4 2014 (£229,442 for BTL vs. £231,470 for house purchase). But while the average homebuyer also had a significant amount of equity behind them (£74,159), this is 26% (£25,755) less than the BTL average of £99,914.

As a result of seeking larger loans (£157,311), homebuyers were more interested in stretching their repayments over a longer time period: 80% sought a term of 25 years or more in Q4 2014, compared with 52% of BTL borrowers.

The Q4 2014 data also reveals Monday afternoon (12pm to 5pm) was the most popular time for aspiring homebuyers to search online for a mortgage. In contrast, Wednesday evening (5pm to 10pm) was the most popular time to search for a BTL loan and also attracts the most interest in remortgaging.

Brian Murphy, head of lending at Mortgage Advice Bureau, said:

“Some BTL borrowers may see equity gains as a chance to refinance and use some of their extra capital to expand their portfolio. For others – particularly those who are less concerned with growing their foothold in the market – there is plenty to be gained from remortgaging to get a cheaper deal or even bring their final repayment date forwards.”