Buy to let landlords need to take into account changing market dynamics, says new report
The buy to let market in the UK is likely to continue facing challenges in the next few years before regaining strength around 2021, according to a new forecast report.
London is no longer the best location for landlords and buy to let investors should carefully consider the latest changes in taxation when evaluating their next steps, according to the analysis from Shawbrook Bank.
It points out that after strong growth since the financial crisis until 2015, the number of buy to let mortgages for house purchases has dropped over the last two years. ‘Both the wider slowdown in the housing market as well as a number of government interventions have had an impact on the sector,’ it explains.
It also points out that demand for privately rented accommodation is expected to increase further in coming years while the buy to let sector moves towards further professionalisation and sustainable financial lending practices.
It adds that a number of major changes, the introduction of a 3% stamp duty surcharge on second homes in April 2016, the gradual phasing out of the tax deductibility of mortgage interest payments starting in 2017 and the tightening of mortgage underwriting standards following a consultation by the Bank of England’s Prudential Regulation Authority, have all had an impact.
It suggests that the ‘substantial’ changes in the tax code as well as the tightening of underwriting standards have contributed to the decrease in buy to let mortgages taken out, but adds that a cooling of the market would have happened regardless as the buy to let sector is closely linked to the wider housing market which is facing more tepid price growth and a regional decrease in transaction levels, especially in areas where affordability ratios are stretched such as in London.
‘Nevertheless, transaction levels have been noticeably lower since the introduction of the stamp duty surcharge. The change in mortgage interest tax relief will make buy to let investments for a large number of private investors less profitable, an effect that still has to fully play out as the tax relief is withdrawn gradually over the next years,’ the report adds.
The forecast suggests that buy to let market activity will further drop, though at a slower pace compared to the last two years. ‘Given a generally weaker housing market and the numerous government interventions we predict that transaction levels will fall to around 57,500 by 2023,’ it points out.
‘While the effect on overall house prices should be rather small, we expect yields to be higher compared to a scenario where the tax changes were not implemented, given that the lack of housing supply generated by buy to let landlords should drive up rents,’ it explains.
To see the rest of the article, please visit: https://www.propertywire.com/news/uk/buy-let-landlords-need-take-account-changing-market-dynamics-says-new-report/
For more up-to-date property news and helpful articles for landlords and tenants alike, please scroll through the rest of Mount Properties' blog.