This article on the buy to let market is reproduced from a UK Finance. The article is written by Clum Bilbe and was published last September. You can read the original article here.
Last week at our annual Buy-to-Let Conference, I discussed the effects that the tax and regulatory changes in the last three years have had on the buy-to-let sector and the direction that the market has been heading in the last 18 months.
The most pronounced effect that these changes have had on the market is a significant reduction in new home purchases. As landlords’ profitability continues to tighten and it gets more difficult to enter the market, fewer small-scale or prospective landlords are purchasing residential properties, whilst large-scale landlords increase in prominence.
This waning demand in house purchase has meant that landlords, overall, are now buying residential properties at a similar rate to selling them, meaning the stock of outstanding mortgages is no longer growing at the rate we’ve previously seen.
Remortgaging is now driving gross lending in the buy-to-let space, as two- and three-year fixed rate deals written in 2016 come to an end.
Focusing on the change to tax relief (where landlords who had purchased as individuals are not able to claim mortgage interest as a deductible), we’ve seen a recent increase in the proportion of landlords who are purchasing through a limited company structure.
Interestingly, this increase in proportion is not due to an increase in activity but is due to a decrease in activity from unincorporated landlords. These individual landlords generally have smaller portfolios than those who purchase within a limited structure – it is a less compelling economic decision to transfer to limited company status if you only have two or three properties.
And when we look at new mortgages to portfolio landlords (those with four or more properties), we can see a similar story: they are borrowing at broadly the same rate as they were 18 months ago, but the proportion of mortgages taken out has increased fairly sharply.
What’s next?
Over the last few years, the result of the tax and regulatory changes has been a reduction in demand which has led to large-scale landlords now moving to the fore of the market.
It appears that home purchases have broadly stabilised, but the final tax relief cut in April 2020 is something to keep an eye on as this could have a further effect on transactions.
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The post The effects of tax and regulation on the buy to let market appeared first on The Mortgage Bureau.
https://www.themortgagebureau.co.uk/buy-to-let-mortgage/buy-to-let-tax-and-regulation/
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