Buy-to-let investments have plummeted since 2015

New investment in buy-to-let property has fallen by 80 per cent from £25 billion in 2015 to £5 billion in 2017, according to a report from the Intermediary Mortgage Lenders Association’s (IMLA). 

The ‘Buy-to-let: under pressure’ report puts this down to the impact of recent tax and regulatory changes that have impacted on landlord activity in the private rented sector (PRS).

These include the stamp duty surcharge of 3 per cent on second homes, tighter required underwriting standards issued by the Prudential Regulation Authority and the phasing out of mortgage interest tax relief, which began in April 2017.It says that these measures have deterred some landlords from buying more properties and have led to others selling up and exiting the buy-to-let market.

Mortgage prisoners

The IMLA, which represents mortgage lenders that lend to consumers and businesses via brokers, suggests that some landlords will become buy-to-let mortgage prisoners because the removal of mortgage interest tax relief will mean that they fail lenders’ affordability assessment, even when they are not seeking to borrow more.

Kate Davies, executive director at IMLA, says: ‘Various interventions by government have apparently been aimed at encouraging more first-time buyers and making investment in buy to let less attractive to existing and potential landlords. But the PRS plays a vital role in our housing supply and it’s essential that a sensible balance is struck if tenants are not to be disadvantaged by shrinking stock and higher rents.’

Ms Davies is calling for a period of consolidation so that the impact of recent changes can be assessed. She says: ‘We urge the government to reassess the impact of the recent far-reaching regulatory changes to buy-to-let investment and allow a period of policy consolidation. Our nation’s PRS investors provide a service that’s vital to millions of UK tenants.’

Commenting on the report, Simon Heawood, chief executive at online property investment platform Bricklane, adds: ’The impact of the policy assault on individual buy-to-let has started to wash through the market. As new tax returns are filled in and fixed-term mortgages come up for renewal, many landlords are recognising that the sums no longer add up.

-Capital gains tax: nine ways to cut down your bill

‘We expect to see a trend of small-scale landlords exiting their direct investments and choosing lower-hassle, tax-efficient opportunities offered via professional investment platforms.

‘There should be advantages for all concerned: individuals gain investment flexibility and the benefits of diversification, while professionalised, large-scale landlords can better leverage their size to protect returns. From a tenant viewpoint, consolidation around professionalised operators has the potential to drive up rental standards across the market.’ 

This article was originally written by our sister publication Moneywise.

Keep up to date with all the latest financial news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment

Restricted HTML

  • Allowed HTML tags: <a href hreflang> <em> <strong> <cite> <blockquote cite> <code> <ul type> <ol start type> <li> <dl> <dt> <dd> <h2 id> <h3 id> <h4 id> <h5 id> <h6 id>
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.