The number of buy-to-let property transactions will drop by nearly a quarter in the next two years due to incoming tax changes, according to the Council of Mortgage Lenders.
In its latest market commentary, the CML said that following a peak this year, the number of buy-to-let house purchases is likely to fall by 22.5% by 2017.
The trade association for mortgage lenders in the UK said there will be 116,000 buy-to-let house purchases this year, falling to 90,000 in 2017.
As part of his Autumn Statement last month, Chancellor George Osborne announced an increase in stamp duty of 3% for landlords and second home owners as part of the government’s efforts to dampen the buy-to-let market. The amount of tax relief landlords can claim on properties will also fall from April 2017.
The Bank of England has previously expressed fears that the buy-to-let market was a potential threat to the UK’s economic recovery as borrowers could be exposed following a downturn, which could hit the wider housing market and economy.
The CML said that the buy-to-let sector faces a “challenging period” and that it expects to see a surge in the market as landlords look to purchase property before the hike in stamp duty takes effect next April.
It also warned that the stamp duty changes for buy-to-let properties appears at odds with the increasing demand for housing in the private rented sector and could pose a problem in the future.
Earlier this week, the Bank of England expressed concern about the high levels of lending in UK’s buy-to let market.
Bank of England Governor Mark Carney said the central bank was prepared to take action over concerns that large numbers of landlords could sell if prices were to crash again.
Jeremy Leaf, former RICS chairman and north London estate agent, said: “These are challenging times for buy-to-let with Mark Carney indicating that he may take further action if required. The sector has been clobbered enough and this series of comments is only fuelling the boom and bust scenario even more. With the Bank of England indicating that it may place further restrictions on buy-to-let lending, those who were thinking of investing in property are more likely to rush to do so in the spring, before further changes are introduced.
“While the governor was right to be concerned about the runaway buy-to-let market, he has taken action and we now need to give the market time to settle before further intervention.”
Mortgage lending
The CML figures also revealed that lending to borrowers in November was down 9% from the previous month to £19.9 billion.
However, the figures were up 23% on the £16.1 billion lent in November last year.
CML economist Mohammad Jamei said lending is set to finish the year stronger than it started, with the pace of lending recovering over the summer months.
“As we’ve said for the best part of 2015, lending continues to be supported by strong fundamentals, which are low inflation, strong wage growth, an improving labour market and competitive mortgage deals.
“Reflecting this recovery, we estimate lending this year to reach £214 billion, up from our earlier estimate of £209 billion.”
Looking ahead, the CML said it expects the majority of borrowers to cope with the modest interest rate rises widely expected to start in the second half of next year.
Due to affordability pressures and limited supply, it does not expect much growth in the mortgage market, while new government schemes such as Help to Buy may be slow to take effect.
Peter Rollings, CEO of Marsh & Parsons, said: “This year wasn’t as quick out of the blocks as 2014 in terms of mortgage lending and overall housing market activity, but is now in much finer fettle than we saw 12 months ago. A strengthening economy and favourable lending conditions means that transactions haven’t tailed off like they did last year, although the seasonal slowdown in December is still to be expected.
“The recent measures announced by the government to build new homes and offer help to those looking to take their first step on the property ladder are welcome gestures, but it will be some time before this intervention is evident in the various monthly indices. The powers that be also need to be careful of artificially stimulating the market at the bottom end while continuing to penalise those in the upper reaches.”
