Buy to Let Sales Suffer in the Last Year

[The Mortgage Broker]

It is a headline many of us expected, but perhaps not to the degree that has occurred. The Council of Mortgage Lenders has confirmed a “weak start to 2017” for the buy-to-let market, and there is no sign this will change at present.

Activity in this portion of the housing market is around half the level it was at just 12 months ago. Figures for the past 12 months reveal an average of around 6,000 buy-to-let home purchases each month. This is a stark contrast to the 10,300 buy-to-let purchases seen in February 2016, and even more so when compared to July the year before, when 11,800 sales were made.

A revised figure for buy-to-let lending

While the CML originally estimated an annual figure of £38 billion in lending to this part of the market both this year and next, it has now revised this to £35 billion in 2017. It has revised the figure for 2018 even more, dropping it to £33 billion.

Darren Pescod, CEO of The Mortgage Broker Ltd, is not surprised by this latest turn in developments. “Landlords have been up against it with the changes implemented in the last year,” he said. “An increase in stamp duty and changes in tax relief laws have meant many no longer see this market as a profitable one. As the tax laws continue to come into effect, I would not be surprised to see the buy-to-let mortgage market dampen further, as people decide not to invest in further properties – mainly because they’re not profiting as they once were.”

Is buy-to-let still worth it?

There is no doubt some landlords have exited the market, while others have downsized their portfolios. Still more have opted to transfer their properties into a limited company arrangement, in the hope of paying less tax. The changes to tax relief, occurring from April this year and coming fully into effect by April 2020, mean some landlords will make no profit at all from their properties. Others may even lose money.

Add the tax changes to the more stringent stamp duty rules, and the buy-to-let market will continue to struggle. Landlords also look set to be affected by new lending stress tests, as implemented by the Prudential Regulation Authority. These look set to add more difficulties to those already faced by many landlords.

No recovery seen to lending in the buy-to-let arena

The CML had forecast a slight improvement in the area, but no such situation has occurred. With the new stricter rules coming into force as well, it seems as if no such improvement will be seen for the foreseeable future.

This has influenced the whole housing market, where lending has remained stable, rather than improving. The buy-to-let market has dragged down overall lending figures, which is only to be expected. It remains to be seen whether a potential future rise in interest rates also has an effect, and if so, which way it will send the figures next.

 

[nmb]

We know that more rental properties are needed to fulfil demand so should we see rental yields increase if there are fewer buy to let properties?

 

[The Mortgage Broker]

We know that more rental properties are needed to fulfil demand so should we see rental yields increase if there are fewer buy to let properties?

Tough question... It depends on your stance on the market. If there are less BTL properties due to the fact that first time buyers are now buying these properties then we are at a level playing field again so no need for rents to rise. However, I believe that rents will rise due to the changes in the tax which means BTL is less profitable to most landlords and economics will surely play apart meaning that landlords will be looking to increase rents to offset some of the tax they will be paying.
Regards

Darren

 

[diyhelp]

At the end of the day, within financial reason, future tenants are at the beck and call of private landlords in relation to rental figures. Any future increases can, as you say, be traced back to government changes in tax. People forget that BTL investors are investing a lot of money and taking a risk with their own funds but some how they are treated liked a pariah by some politicians.

Perhaps if the governments of years gone by, Conservative and Labour, had not sold off so many council houses we would not be in this situation. It may have kick started the housing boom but the consequences are there for all to see.

 

[Gareth Bain]

Do you think that the B2L mortgages have suffered based on the change in tax legislation to buy to let landlords?

 

[Longterminvestor]

I think that has been a short term issue Gareth. It has also woken many investors to what the government might do in the future to try and squeeze a little more money out of the property market. However, we have seen worse jolts than this in the past, markets absorb news, consider and then adapt - we have seen it time and time again, this time will be no different in my view.

 

[Gareth Bain]

It is obvious that the government want to institutionalise property investment. They want to move away from the private landlord investors and regulate the property investment sector by squeezing private landlords. If you can institutionalise it, it means that you can regulate and control it which means you can Tax it.

 

[realdeals]

Gareth, I totally agree. If governments cant control something they will tax it to death - buy to let is an example where this is starting to occur.

What makes me laugh is previous PFI programs used to build hospitals, schools, etc in the UK. When governments want money they will come running to institutional/private investors but when it suits their political agenda they are happy to hang investors out to dry to get a few votes.

 

[diyhelp]

Slowly but surely we are seeing more and more taxes and costs creeping into the BTL market. As you suggest Gareth, the government is trying to institutionalise the sector then they can effectively treat private investment money as their own by dictating when, where and what types of BTL property can be built/converted. Lets face it, they have made a mess of council/social housing so why should we trust them to make a success of the BTL market?