New investment in buy-to-let property has fallen by 80% from £25 billion in 2015 to £5 billion in 2017, according to a report from the Intermediary Mortgage Lenders Association’s (IMLA).
The ‘Buy-to-let: under pressure’ report puts this down to the impact of recent tax and regulatory changes that have impacted on landlord activity in the private rented sector (PRS).
These include the stamp duty surcharge of 3% on second homes, tighter required underwriting standards issued by the Prudential Regulation Authority and the phasing out of mortgage interest tax relief, which began in April 2017. It says that these measures have deterred some landlords from buying more properties and have led to others selling up and exiting the buy-to-let market.
The IMLA, which represents mortgage lenders that lend to consumers and businesses via brokers, suggests that some landlords will become buy-to-let mortgage prisoners because the removal of mortgage interest tax relief will mean that they fail lenders’ affordability assessment, even when they are not seeking to borrow more.
Kate Davies, executive director at IMLA, says: “Various interventions by government have apparently been aimed at encouraging more first-time buyers and making investment in buy to let less attractive to existing and potential landlords. But the PRS plays a vital role in our housing supply and it’s essential that a sensible balance is struck if tenants are not to be disadvantaged by shrinking stock and higher rents.”
Ms Davies is calling for a period of consolidation so that the impact of recent changes can be assessed. She says: “We urge the government to reassess the impact of the recent far-reaching regulatory changes to buy-to-let investment and allow a period of policy consolidation. Our nation’s PRS investors provide a service that’s vital to millions of UK tenants.”
Commenting on the report, Simon Heawood, chief executive at online property investment platform Bricklane, adds: “The impact of the policy assault on individual buy-to-let has started to wash through the market. As new tax returns are filled in and fixed-term mortgages come up for renewal, many landlords are recognising that the sums no longer add up.
"We expect to see a trend of small-scale landlords exiting their direct investments and choosing lower-hassle, tax-efficient opportunities offered via professional investment platforms.
“There should be advantages for all concerned: individuals gain investment flexibility and the benefits of diversification, while professionalised, large-scale landlords can better leverage their size to protect returns. From a tenant viewpoint, consolidation around professionalised operators has the potential to drive up rental standards across the market.”