Interestingly, the stock of housing held for private renting has more than doubled in the past 20 years and has become the second largest tenure, equating to around 4.5 million households in England. During a panel session at the Great Buy-To-Let Debate in London earlier this year, it was estimated that buy-to-let will pass £30 billion by the end of the year and will make up 25% of homes by 2020, again showing how the UK has seen phenomenal growth in the buy-to-let arena.
The Bank of England has expressed concern about the effect buy-to-let will have on the housing market in terms of house price inflation and the government was obviously of the same mind when it introduced the tax changes in the budget, lowering the amount of tax relief that investors can claim back.
George Osborne said the move was aimed at creating a ‘level playing field’ between homeowners and investors. However, the government is conflicted which is probably why the new tax measure will come in gradually over four years. Many of its party members and key supporters are property investors so the Chancellor may well feel that it cannot introduce measures that are too stringent or he faces a potentially backlash from his own party.
BTL is now in its fifth year of recovery and continues to advance steadily, and I strongly believe we will see little other than the continuing boom in buy-to-let over at least the next four years. While professional landlords are likely to make themselves very familiar with the new tax rules, potentially setting up a limited company through which to manage their properties, the people who are likely to be most affected will be those people who just have a small number of properties, who fall into the higher rate tax bracket, but who do not necessarily have the knowledge or the experience to alter the way that they run their property.
This may therefore deter older investors, who had been considering using new freedoms to use their pension cash, from investing in buy-to-let and maybe those who were thinking of buying a house for their child to rent out during university, for example. It may also dissuade other ‘accidental landlords’ from renting their properties rather than selling them.
For brokers, this means they would be wise to prepare for many more questions than they may have been used to receiving up until now. It is likely that concerned landlords will pick up the phone to the mortgage broker who arranged their mortgage to ask them what to do next so it will be important to be able to do more than just arrange a buy-to-let mortgage from now on. While brokers are not tax advisers, it may be helpful to be able to point buy-to-let clients in the direction of someone who is so that they can also give them the appropriate advice.
As landlords’ margins are likely to be narrower under the new regime, it will be more important than ever that landlords are insured against void periods which could well tip them into a loss making situation.
We also have the forthcoming ‘consumer buy-to-let’ rules under the MCD coming into force next March, where for all ‘accidental landlords’, buy-to-let will now be a regulated transaction. This will require mortgage brokers to have additional permissions. They are not hard to get but it is something that brokers dealing with buy-to-let will need to think about.
Ultimately I think it will take more than these two measures to slow down the buy-to-let market by much. Both existing and new lenders are understandably still showing a huge appetite to lend, as it is a more profitable area of business, so more lenders will enter this market yet.
