The Prudential Regulation Authority’s changes last year to the UK’s lending rules for the buy-to-let sector have led to reduced activity in the market, leading lender Paragon has reported in its full-year accounts.
Following a review of the buy-to-let market in 2015/2016, the PRA this year raised the standards it expects underwriters to apply to landlords taking out mortgages.
This includes greater scrutiny of a landlord’s overall business financials, in particular for portfolio landlords with four or more properties.
Paragon also says the additional Stamp Duty that is now paid by landlords buying properties, and the reduction is tax perks for the sector, also contributed to a bad year.
These factors, the lender says, helped drive modest profits within its business over the past year, up from £143.2 to £144.8 million – a rise of just 1.1%.
Paragon appears to suggest that the additional red tape has increased its costs, because its buy-to-lending increased by 20% to £1.39 billion last year.
And depsite the “disruption” to the market in recent months, the lender says overall demand in Britain’s private rented sector is expected to continue for the “foreseeable future”.
“Against this backdrop the Group’s performance has been strong, with its twenty-year experience of servicing the complex needs of professional landlords differentiating it from other lenders and allowing the business to make market share gains during the year,” says Chief Executive Nigel Terrington in his management report.
But Paragon says it is the tax relief reductions introduced by the government for landlords which have had a more damaging influence on landlords than the extra 3% Stamp Duty they must now pay on property purchases.
“It is the amateur landlords – those with fewer than four properties – who have been moving away from the market,” the report says, “leading to a fall in the volume of buy-to-let transactions which seems to be establishing a new ‘normal’ level.”