Why a Landlord exodus remains unlikely

There has been a lot of talk surrounding the looming tax changes to the buy-to-let market. Some argue it will bring about the demise of buy-to-let landlords as we know them. Others say it will help to alleviate the housing shortage we are currently seeing within the UK property market. One thing is for sure, and that is Landlords are an important part within the UK property market and offer a service that is needed by a wide array of people. The Council of Mortgage Lenders recently released figures that show lending to landlords accounted for 17 per cent of all new loans in the third quarter of 2015. But with the increasing stamp duty and reduction of available tax relief, what impact, if any, will this have on the growth of the buy-to-let sector?

Increasing costs and applying more checks to the buy-to-let sector is not going to help the wider issue of a declining number of owner-occupier properties. You only have to look at the facts; the majority (60%) of lending to the buy-to-let sector is for re-mortgaging and not new money coming in. The private rental sector plays an increasingly vital and growing role in the housing market and until the government addresses the issue of inadequate housing supply, this is not going to change.

While, no one can say with absolute certainty how buy-to-let investors will react to the changes being introduced, it seems unlikely that the majority will be put off. When you consider the stamp duty increase, most investors look for long-term returns over short-term gains. What is more likely is they will simply set the higher one-off cost/s against years of rental income and, at the current rate, potential increases in property value.

Others may look down another avenue and look to re-balance their portfolios by purchasing cheaper properties that have lower stamp duty bands. The issue with this is they then directly compete with first-time buyers which has always been a point of contention.  However, there’s already strong evidence that the rush to buy property before the April deadline is pushing up house prices.

The additional limiting tax relief on mortgage interest payments to the basic rate and reducing the relief on wear and tear will undoubtedly impact on landlords. At the moment, it is too early to say by how much, though this will vary greatly between investors. Some landlords may look to combat this by pushing up rent prices, something which the government cannot have intended. Others may look to set up limited companies in order to mitigate the impact. Investors will need to take tax advice in order to identify what will work best for them.

Now a widespread withdrawal from the market by investors seems highly unlikely. Firstly, according to the Council of Mortgage lenders only 31% of buy-to-let property actually has a mortgage on it. Secondly, there is currently a lack of alternatives. Bank returns for savings remain near non-existent and the stock market brings with it a level of volatility. As long as there is an inadequate housing supply, prices will continue to rise and investors will continue to invest into the buy-to-let market for long-term growth. There is nowhere else where investors can get comparable returns.

If you have any queries about how these changes could affect you, please don’t hesitate to contact Orchard & Shipman today. As a company with over 25 years’ experience dealing with private landlords, our team of experts understand the impact a change in government policy can have. We’re readily available to guide and advise you through these sometimes confusing changes in legislation.