The Council of Mortgage Lenders (CML) has revised its predictions for buy-to-let lending over this year and next amid tax changes and increases in longer-term loans.
The trade body initially expected to see £38bn of lending in 2017 and 2018 but is now forecasting £35bn in 2017 and £33bn in 2018.
The drop was attributed to recent buy-to-let tax changes as well as tougher lending criteria, but lenders also say borrowers are taking out longer term loans.
Looking at mortgage lending overall, the CML estimates gross mortgage lending reached £20.1bn in May. This is a 12% increase on both April last month and on May last year.
Paul Smee, director general of the CML, said: “Remortgage activity and first-time buyers continue to drive lending this year. Looking ahead, we expect to see this trend continue, but not as strongly, as the factors supporting lending are blunted by less favourable economic conditions.
“Buy-to-let had a weak start to 2017, and the sector’s contribution to overall net mortgage lending has fallen considerably over the last year.
“While falling mortgage interest rates have helped support borrowing, tax and prudential measures are exerting pressure on the buy-to-let market.
“Following the distortion of the Stamp Duty change on second properties last year, we expected a slight recovery in lending levels. However, this has not materialised, and we therefore have lowered our forecast for buy-to-let lending this year and next.
“This re-emphasises the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed.”
Commenting on the figures, Jeff Knight, marketing director at Foundation Home Loans, said: “The political picture may have had a short-term impact, but ultimately, those already in the buying or re-mortgaging process aren’t going to hold their breath for too long and the mortgage market is clearly able to withstand more than a few knocks.
“Record low mortgage rates have matched ongoing incentives for first-time buyers, boosting confidence for those looking to get a foot in the door.
“That said, the uncertainty off the back of the election may delay a more immediate solution to the ongoing supply and demand imbalance, and the appetite of those seeking mortgage approvals will be dampened with less quality property to choose from.
“While we wait to see what further policies will be introduced – or axed, as may be the case with Help to Buy – we need to ensure that the buy-to-let market is robust enough to best serve those saving up for that first deposit in the meantime.”