Buy-to-let in spectacular rise and fall either side of stamp duty hike
06-16-2016
Tax increase sees number of landlords applying for mortgages overtake first-time buyers for first time since 2008
According to Bank of England statistics published yesterday, buy-to-let purchases accounted for £13.5bn of loans between January and March, accounting for 21 per cent of the market overall and up more than 75 per cent on the same period in 2015, the Daily Telegraph notes.
As a result, landlords outstripped the borrowing of first-time buyers for the first time since early 2008, at the height of the "credit crunch". The period saw new purchasers take out £10.8bn worth of mortgages, up 25 per cent year-on-year.
However, lending to landlords seemingly collapsed in April, say figures from the Council for Mortgage Lenders (CML).
The Belfast Telegraph reports that 4,200 loans with a combined value of £600m were handed out in April to those purchasing buy-to-let properties, down more than 85 per cent on March and around half of the levels seen in April 2015.
CML director general Paul Smee said: "There is a sense of calm after the storm... We expect the market to take several months to return to its previous levels after the lending surge."
Sitting in the middle of these wildly divergent trends was the introduction of a stamp duty surcharge of three per cent on second homes, which came into force on 1 April and hikes the upfront levy due on a £250,000 house from £2,500 to £10,000.
With a further clampdown on the relief landlords can claim on mortgage interest and maintenance costs coming from next year, is this now the beginning of the end of buy-to-let?
Colin Bell, at Hampshire Trust Bank, does not think so. Rising house prices are holding back increasing numbers of first-time buyers, he told the Telegraph, so landlords will continue to borrow more. Meanwhile, younger households show an increasing cultural trend towards renting.
Others also believe the demand will remain high while low interest rates reduce the returns available from mainstream assets. In addition, it's thought the crackdown will simply lead to higher rental costs for already hard-pressed tenants.
Buy-to-let could become a 'wealthy person's game'
20 May
New guidelines for mortgage lending criteria before tougher tax rules come into force next year could make buy-to-let investing a "wealthy person's game" in the years to come, according to one expert.
Simon Collins of broker John Charcol was speaking to the Daily Telegraph in the wake of a decision by 'big four' bank Barclays to increase the "minimum rental cover" for landlord loans. Rent will now need to be 145 per cent of mortgage costs, compared to a previous 135 per cent.
The change could encourage prospective landlords to increase rental costs – a likely prospect given the tax rises coming in next year – but in practice will also make it harder for wannabe investors to secure a loan. Nationwide's specialist buy-to-let arm, the Mortgage Works, upped its own minimum rental cover from 125 to 145 per cent last week.
As of next year, tax changes will come into force that will reduce the tax relief on mortgage interest for private landlords. The effect will be both to double the annual tax bill for higher-rate taxpayers and to push more investment homeowners out of the basic rate bracket, leaving many nursing annual losses.
"In London and the south-east especially, a lot of people who weren't necessarily rich or wealthy were doing buy-to-let because they didn't understand pensions, and saw property as a safe, tangible asset, said Collins. "Let to buy – where homeowners rent out their main home to raise cash to move – was very, very popular, and the people doing it were not wealthy people."
Barclays says that as a "responsible lender" it must "ensure that aspiring landlords can continue to meet all their financial commitments and are protected".
Tougher lending criteria could also be introduced in a move to head off new rules on the sector from the Bank of England, which has launched a consultation on proposals designed to force banks to take into account a wider range of fees when assessing buy-to-let mortgage affordability.
Earlier this week the BoE released a research paper that claims the tax changes next year, coming after a tax duty surcharge this April, would not prevent continued demand for buy-to-let property as investors anticipate "positive expectations of rental growth in the years ahead".