Data released by the Council of Mortgage Lenders (CML) shows that landlords are withdrawing from the market in response to tax changes and tighter lending, this has resulted in buy-to-let home buying activity being half what it was a year ago (1).
The number of properties bought by landlords has almost halved in a year after a tax and regulatory clampdown. The CML, who represent banks and building societies, say that buy-to-let home buying activity has averaged around 6,000 purchases a month over the last year, and the number of landlord purchases involving a mortgage was 5,300 in April this year. These figures compared with 10,300 in February 2016 and 11,800 in July 2015 (1).
This downward trend has led the CML to downgrade its forecasts for buy-to-let lending over 2017 by £3bn and 2018 by £5bn (3). The CML data has followed a series of recent surveys and that have suggested the housing market is running out of steam. However, the crackdown on buy to let may have helped young people trying to get a foot on the property ladder with house purchase activity was being driven predominantly by first-time buyers (1).
The Council of Mortgage Lenders warned against hitting landlords with any further changes to taxation and lending rules, saying the figures “re-emphasise the case for avoiding further changes to the tax and regulatory framework until the effect of these already in train have been properly assessed”. However the Prudential Regulation Authority, part of the Bank of England, will start to enforce the next tranche of tougher standards for landlords with four or more mortgaged properties, as early as September this year (2).
Many landlords have claimed that tax changes being phased in between April 2017 and April 2020 meant that letting properties no longer made financial sense (1). Currently landlords can deduct mortgage interest and other finance-related costs from their rental income before calculating their tax liability, but this interest relief is being slashed from 100% to zero. Instead a less generous system of tax credits is being introduced (1).
Mark Harris, chief executive of mortgage broker SPF Private Clients, said it was “no surprise that buy-to-let lending had been subdued, as the sector was still coming to terms with various changes, such as the reduction in mortgage interest tax relief, tougher lender criteria and the 3% hike in stamp duty that took effect in April 2016.”
He added: “Landlords are being more cautious when it comes to expanding portfolios while others are considering whether incorporation is the sensible way forward. With further PRA guidelines set to be introduced in October, there are new challenges ahead for the sector, and we are awaiting detail from lenders as to how they are going to deal with these. (3)
Your home may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate on buy to let mortgages