Death knell for buy-to-let? Government 'war on landlords' has seen sales collapse by 64% in the last year, says top estate agent
12-23-2016
By Sarah Davidson For www.Thisismoney.co.uk
One of London's leading estate agents has sounded the death knell for buy-to-let after revealing sales to landlords have collapsed in the past year.
Figures from haart, one of London's best known estate agents with branches across England and Wales, show landlord property purchases have plummeted 64 per cent over the past 12 months - and its boss claims this is a direct result of a government-led crackdown on buy-to-let.
It follows various tax and mortgage lending changes that have hit small-scale private landlords, including a 3 per cent stamp duty surcharge on buy-to-let purchases introduced in April this year and the removal of certain tax reliefs from April 2017.
One of London's leading estate agents with branches nationwide has blames Government measure for a drastic collapse in buy-to-let property sales.
Paul Smith, chief executive of haart, called the scale of decline in buy-to-let 'deeply worrying'.
He said: 'Landlords have clearly pulled out of the market and are unlikely to return any time soon. This is entirely the result of government policy, with Theresa May now picking up George Osborne’s baton and proceeding to bash landlords with renewed vigour.'
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Estate agency groups across the country had lobbied the government to ditch proposals made by former Chancellor of the Exchequer George Osborne to reduce tax reliefs for landlords before Prime Minister May's Autumn Statement last month.
Their pleas were left unheeded. From April 2017 landlords will start to lose tax relief on mortgage interest which can currently be reclaimed at a landlord's nominal tax rate - up to 45 per cent.
Chancellor Philip Hammond confirmed that landlords will see tax relief cut from April 2017
Over the next four years this will be replaced with a 20 per cent tax credit, meaning landlords will have to declare their gross rental income and pay tax on the full amount before being able to claim the credit.
At the same time mortgage lenders are imposing tougher constraints on buy-to-let mortgages from January 2017, demanding rental income covers mortgage payments by 145 per cent at a mortgage rate of 5.5 per cent in most cases.
Chancellor Philip Hammond also confirmed plans to ban lettings agents from slapping exorbitant charges on tenants, sparking fears these costs will be transferred to landlords' bill and be passed on in hiked rents.
Smith said: 'The end of tax relief on mortgages, the 3 per cent stamp duty surcharge, strict new lending criteria, and now a ban on tenant letting fees that will see the costs passed on to owners, the government’s attack on investors adds up to a war on landlords and a buy-to-let market crippled by tax hikes and unnecessary regulation.
'The effect has been to more than halve the number of buy to let sales in England and Wales, and the inevitable consequence will be fewer properties available to renters next year and higher rents.'
Earlier this week Dame Kate Barker, a former member of the Bank of England’s monetary policy committee and author of a seminal report on housing supply written in 2004 for the Labour government, told MPs that hardworking families who rent are at risk of losing their homes when the crackdown on landlord finances begins next year.
She warned the imminent removal of tax relief on mortgage interest for landlords would wipe out profits for many of them. This in turn will force them to hike rents to unaffordable levels or sell up altogether, leaving families with no option but to move out.
Speaking at a session with the Treasury select committee earlier this week Barker warned 'those who have been living in a house for some time and have been paying their rent' could find themselves forced to move 'because the buy-to-let landlord no longer finds the yield acceptable or can’t afford it'.
Government statistics show that 37 per cent of households in the private rented sector are families.
Alan Ward, of the Residential Landlord's Association, said: 'Dame Kate’s warning is a sober reminder of the potential social consequences of forthcoming changes to mortgage interest relief.
'These changes pose real risks for tenants where their landlord is simply unable to afford the extra costs being imposed on them and has no option other than to sell a property. Even at this late stage we would call on the government to apply the changes only to new borrowing.'
Earlier this week several lenders tightened up their criteria for buy-to-let lending, increasing the amount of rental income landlords need to have to cover their mortgage payments.
Lenders are also demanding that landlords show they could still cover their mortgage amply if interest rates go up in the future.