Tax reforms deter buy-to-let landlords
05-22-2017
Government measures to cool the market have hit ‘smaller players’
© Bloomberg
by: James Pickford
Sales of buy-to-let property fell in April, according to research that suggests amateur landlords are being deterred from the market by the phased removal of valuable tax relief.
Buy to let’s share of property valuations carried out by estate agency Connells dropped to 7 per cent in April, substantially down from the five-year April average of 13 per cent.John Bagshaw, Connells corporate services director, said a series of government measures designed to reduce growth in the sector had hit “smaller players”. These include a 3 percentage point stamp duty surcharge on buy-to-let and second homes introduced in April 2016, and cuts to tax relief on mortgage interest, which are being phased in over four years from April 1 2017. “Over the last year, buy-to-let valuations have made up less than 10 per cent of market activity, representing a new low in April.
This could suggest that smaller, private landlords, who typically use buy-to-let mortgages, have not been investing on the same scale as previously seen.” However, valuations carried out for buy-to-let remortgaging surged, as landlords sought to take advantage of low interest rates and competitive mortgage deals to reduce their monthly payments. Remortgaging for buy-to-let accounted for 11 per cent of valuations, up from 6 per cent in 2012. From April 2017, landlords can offset only 75 per cent of mortgage interest against rental income, compared with 100 per cent before this date. By 2020, tax relief will be limited to only 20 per cent of mortgage interest — the basic rate of income tax. Separate figures published on Wednesday by the Council of Mortgage Lenders showed a modest 4 per cent rise in buy-to-let lending between February and March. Compared with March 2016, the value of buy-to-let lending was 79.5 per cent lower, though the CML warned that the figures were skewed by the “rush to buy” ahead of the introduction of the stamp duty surcharge in April 2016.
Steve Olejnik from Mortgages for Business, a buy-to-let mortgage broker, said: “Lending to landlords has slowed. This was the government’s aim and means that over the last 12 months buy-to-let lending by volume has dropped back to just 15 per cent of all mortgage lending.” The data also appeared to support another government aim: better prospects for first-time buyers. More loans went to first-time buyers in March 2017 than in any March over the past decade, the CML said. First-time buyers took out £4.9bn in mortgages in March, up 9 per cent on March 2016. The number of loans to first-time buyers rose 12 per cent year-on-year.Brian Murphy from the Mortgage Advice Bureau brokerage said the CML data gave “a pretty positive picture” of the market.“It’s unsurprising that this correlates with buy-to-let lending figures dropping significantly year-on-year, suggesting that the lack of competition between those trying to get on the property ladder and those looking to invest in property is diminishing, much to the benefit of the first time buyer.”
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