Will the changes to buy-to-let affect amateur property investors like me?
PUBLISHED: 12:32 14 December 2015 | UPDATED: 12:32 14 December 2015
Our property expert Simon Gerrard weighs up what the changes to the buy-to-let market will mean for small and non-corporate investors
The buy-to-let market has been rocked over the past few weeks as both the government and the Bank of England have shown their intention of bringing the sector under control. The buy-to-let market has been rocked over the past few weeks as both the government and the Bank of England have shown their intention of bringing the sector under control.
Past governments have been quite happy to allow the private rented sector, which now accounts for about 20 per cent of housing in the UK, to pick up the slack as reductions have been made in the provision of social housing. Mortgage lending for buy-to-let has risen from £16 billion in 2012 to £27 billion in 2014 with £31 billion forecast for 2015.
However for some time now the Bank of England has been expressing concerns about the speed at which the buy-to-let market has been expanding and the dangers it could pose to the wider economy. It has therefore been looking at ways it can stem the demand for buy-to-let, including imposing stricter lending criteria.
Their concern is that when rates do eventually rise many overleveraged landlord investors may need to sell their properties if they cannot meet their mortgage through rental payments, which in turn could further exacerbate a fall in house price.
Then in the recent Autumn Statement, George Osbourne, announced that from April 2016 there will be three per cent added to each stamp duty band payable when buying a property in addition to your current home. This includes second homes, holiday homes and buy-to-lets. The increase will add thousands of pounds to the upfront costs.
This policy is part of the government’s home ownership drive and a way of taking the steam out of the buy-to-let sector. It follows on from the announcement in July’s summer budget that from 2017 mortgage interest relief will be reduced and claims for wear and tear will be restricted.
These moves are squarely aimed at the ‘amateur’ investor landlord. Increases in stamp duty will not apply to institutional investors, such as those involved in build-to-rent, or larger landlords with portfolios of more than 15 properties (although the government are still consulting of this number).
The most disappointing aspect of this change, is that the government seems to be repeating the mistakes regarding house building. There they all but killed off the small and medium sized builder hoping that the major house builders could and would pick up the shortfall. They didn’t! They now seem to be repeating these mistakes by trying to stifle the small buy-to-let investor.
Many potential landlords will be deterred from entering the market reducing further the supply of property to rent, whereas the demand continues to grow, as for many in London renting is a life choice while for others buying is simply not an option. In the short and medium terms the most likely outcome will be a rise in rents, due to a shortage of property and those landlords who do come into the market looking to recoup their increased upfront costs.
Once the dust has settled, equilibrium will return. Property will continue to be a sound investment as returns in capital growth alone will outpace many other investments and buy-to-let will remain a good investment vehicle for many.
However, it will be critical for anyone considering investing in buy-to-let to take professional tax and financial advice, as property may not be the best investment option available for their circumstances.
Simon Gerrard is the managing director of north London estate agents, Martyn Gerrard. Email your questions to firstname.lastname@example.org or tweet @hamhighproperty