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Buy to lose: buy-to-let landlords bow out in face of prohibitive tax changes


06-25-2017

 

The Council of Mortgage Lenders has revides its buy to let forecast down from £38 billion to £35 billion next year

The Council of Mortgage Lenders has revides its buy to let forecast down from £38 billion to £35 billion next year

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The Council of Mortgage Lenders has revised down its buy to let forecast for next year as first time buyers prop up the mortgage market

The CML has revealed that gross mortgage lending has risen 12 per cent since last May, and again since April this year to £20.1 billion.
 
The CML has revealed that gross mortgage lending has risen 12 per cent since last May, and again since April this year to £20.1 billion.

The Council of Mortgage Lenders (CML) has revised down its buy to let forecast for 2017 and 2018 in the wake of more restrictions on buy to let landlords and a shakier economy.

The CML anticipates that lending will reach £35 billion and £33 billion in the next two years respectively, down on the £38 billion forecast in December.

Buy to let house purchases have halved since last year, averaging 6,000 a month. Approvals fell to 65,000 in April from 69,000 in January, below the 71,000 that the Bank of England predicted per month for the rest of the year.

Investor appetite has been dampened by the imposition of the 3 per cent levy on second homes last year as well as new tax and prudential regulations.

Since the start of the year, lenders have been required by the Prudential Regulation Authority to stress test new lending by 5.5 or 2 per cent above the pay rate, potentially making for worse returns in low rental yield areas like London.

CML director general Paul Smee said: “While falling mortgage interest rates have helped support borrowing, tax and prudential measures are exerting pressure on the buy-to-let market. Following the distortion of the stamp duty change on second properties last year, we expected a slight recovery in lending levels.

“However, this has not materialised, and we therefore have lowered our forecast for buy-to-let lending this year and next. This re-emphasises the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed.”

As of April this year, higher rate taxpayers who are landlords have had the tax deduction they can claim from mortgage interest reduced, meaning landlords will effectively be taxed on profit rather than rental income which could make their assets financially unviable.

Further measures are due to take effect in October, including a PRA portfolio landlord underwriting requirement and new Bank of England requirements on loan reporting.

“It’s a two pronged attack, really,” says Chris Christodoulou, author of the NW3 property blog.

“If you look at the taxation levels for landlords now that they’re gradually phasing in, in some cases landlords could end up making a net loss.”

Mr Christodoulou believes landlords have been “clobbered” by recent changes intended to discourage them from investing, and give first time buyers a leg up.

Gross mortgage lending increased 12 per cent since May last year to £20.1 billion, driven by first time buyers, who have increased their market share by 8 per cent in the 12 months to April as home movers fell 9 per cent.

“I feel that this is a correction in the marketplace, and it will go some way towards helping first time buyers get their foot on the first rung of the ladder because they have a little bit more supply now being offered to them.”

However, the policies don’t go far enough towards solving the housing crisis. “It still doesn’t address the chronic issue of the shortage of supply. And at the same time, you’ve got a growing population,” he adds.

Just 27 properties have come up for rent in Hampstead in the last 31 days according to the NW3 property blog. With 4373 rental properties in NW3 as a whole, just 14.33 per cent of stock is reaching market per month, well under the normal 25 per cent.

Mr Christodoulou argues this is because tenants are staying put in their homes for between 24 and 30 months. At the same time, a lack of supply has seen rents increase on the most desirable properties, although Mr Christodoulou argues that it’s those properties renting at over £1,000 per week that are struggling the most.

“Normally rents would rise in minimum in line with inflation. I can tell you that over the past year of trading, that hasn’t been the case,” he says.

“That’s not great news if you consider that inflation has risen to around 2.5 per cent. If you base it on that principle, we haven’t seen rents going up at the top sector by 2.5 per cent.”

In fact, Mr Christodoulou expects rents to drop at the lower end of the market by between 2 and 5 per cent.

“Contrary to that, we’ve also noticed that properties that are offered in grade A condition will rent quickly and achieve rents that we’ve seen in previous years in 2015 and 2016.”

Mr Christodoulou argues for housing stock built for a variety of different tenures, to cater for renters as well as homeowners. That will require a review of the current prohibitive policies.

“I would say that by the early 2030s, a majority of 60 to 70 per cent of people in Britain will be renters rather than homeowners. With that in mind, I think that in the future there is likely to be some further reviews of the current policies that have been put into place.”

“Help to buy is not so much of a problem. I think it’s help to supply is what needs to be addressed here.”

www.hamhigh.co.uk

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