shutterstock 166545692 - Buy-to-let lending slumps as landlords take fright at tax changes

Buy-to-let lending slumps as landlords take fright at tax changes

Posted on 14th August 2018

Regulatory clampdown sees mortgage activity fall 19% compared with last year

Buy-to-let mortgage activity slumped in June, as landlord investors took out nearly one-fifth fewer new home loans under the chilling effects of regulatory and tax changes.

Landlords took out 5,400 new buy-to-let mortgages for purchasing homes in June. This was 19.4 per cent fewer than in June last year, according to figures from UK Finance, the industry body, published on Tuesday.

Landlords’ appetite for new purchases has been blunted by a series of tax changes and new regulations, which have made it harder for highly leveraged owners to turn a profit.

Tax relief on buy-to-let mortgage interest is being phased out over the four years to 2021. A new stamp duty surcharge was also introduced for landlord buyers in 2016, adding 3 percentage points to the duty paid by buy-to-let or second home purchasers.

The Bank of England has also told lenders to adopt new rules on buy-to-let affordability, insisting on minimum criteria for “stress testing” loans and imposing stricter conditions on lending to those with four or more properties.

Jackie Bennett, director of mortgages at UK Finance, said: “Although the full impact has yet to be felt, tax and regulatory changes continue to bear down on borrowing activity in the buy-to-let purchase market.”

The June data come a week after the Royal Institution of Chartered Surveyors (Rics) warned that the exodus of small-scale landlords in the face of the clampdown was reflected in a drop in new lettings appearing on the market — even as demand from tenants had risen slightly.

Rics said that as a result of the imbalance in supply and demand, rents would have to rise by an estimated 15 per cent by the middle of 2023, with East Anglia and south-west England likely to see the steepest growth over the period. Rics expects a 2 per cent rise in rents across the UK over the next year.

Abdul Choudhury, policy manager at Rics, said the government’s measures had stifled supply in the small-scale part of the buy-to-let market, without doing enough to stimulate it elsewhere, such as in the professional build-to-rent sector.

“While the current focus is rightly on using regulation to improve the experience for tenants, government must urgently look again at the private rented sector as a whole, including ways to encourage good landlords. Ultimately, government must consider the impact of its policies, and if the wish is to move away from private rented sector, it must provide a suitable alternative,” he said.

Buy-to-let remortgaging activity was flat in June compared with the same month last year, according to the UK Finance figures, with £2bn of lending in the month and 12,600 buy-to-let remortgages.

Source: FT | Originally published on: 14/08/2018 | See the original post on FT

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