Ratings agency Moody’s believes that the increased regulation of mortgages is not only positive for the UK banking system but will also limit the risk of a sharp fall in house prices once interest rates rise.
Moody’s said that recent measures to cool the buy-to-let mortgage market will support the creditworthiness of the UK banking system by helping to ensure robust lending standards.
Riccardo Rinaldini, an analyst at Moody’s, said: “Once implemented, the UK government’s tax and stamp duty initiatives should help to temper the growth of the buy-to-let sector. This should reduce the tail risk of a sharp decline in house prices from a concentrated market sell-off when interest rates eventually rise.”
While the current favourable economic environment has helped keep buy-to-let mortgage arrears low, the sector could negatively affect UK banks if things change, Moody’s said.
“We consider buy-to-let mortgages to be inherently riskier than owner-occupied mortgages. If borrowing costs rise and rental income no longer covers landlords’ interest payments, a broad based sell-off of buy-to-let properties could fuel a fall in house prices, negatively affecting all banks and building societies in the UK,” said Rinaldini.
The 3% increase on stamp duty is set to take effect from 1 April as part of the government’s attempt to curb the buy-to-let market and free up property for first-time buyers. The basic rate of tax relief landlords can claim on properties is also set to fall to 20% from April 2017.
Greg Davies, assistant vice president in structured finance at Moody’s, said: “The Treasury’s Autumn Statement announcements have cost implications that will hamper growth in the buy-to-let market. These cost implications could deter new borrowers from entering the market, thereby dampening the demand for buy-to-let loans in the medium term.
“However, securitised transactions backed by buy-to-let mortgages will benefit from the UK’s stable housing market and strong underwriting criteria. Therefore, the decrease in buy-to-let loan origination will not have a negative impact on the performance of transactions backed by buy-to-let mortgage loans.”
The volume of outstanding buy-to-let mortgages in the UK has more than doubled from £85 billion in 2007 to £176 billion in 2015.
Interest rates are currently at a record low of 0.5%, where they have been since 2009. Many commentators forecast they will remain at this level well into 2017.
The Bank of England said it would monitor developments in buy-to-let activity in December, but did not announce any new measures to curb mortgage approvals.
It has previously expressed fears that the buy-to-let market was a potential threat to the UK’s economic recovery. There have been concerns that buy-to-let borrowers could be exposed following a downturn, which could hit the wider housing market and economy.
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I think the article is badly written. I am a landlord who has a mix of owned properties and buy-to-rents. I have ‘put my money’ where my mouth is!! All these so called specialist writers have NEVER invested any of their own money in anything! Exactly what Trump said to a fellow candiate for the election of president of the USA. Listen to the speech.
I think that the government should be HELPING people to purchase properties to rent NOT stopping them and making the conditions unaccepatble. The country is SHORT of housing and now some landlords will sell putting more pressure on the local authorities to house people. We do not accept any DHS as they have been a total pain. Leave filth, cigarette ends, cans outside their properties which have to be cleared up. Some landlords do not care and they would have accepted these people but if they sell where will the people live? They do not have enough for a deposit on a house so the market will be harder for them to find somewhere to live. I feel sorry for the youngsters and they need housing which the local authority cannot supply. Why not help these people? They need a chance! If they save a deposit, by the time they have enough money the price of the property has risen. Not good news. I could say a lot more on the topic. By the way I have been a landlord for 40 years and for 35 years of that time I never took a PENNY out of the business. All the money went back to pay the banks. Do you not think I now deserve some return on all those years of hard work? Let these so called experts put their money into business and see how they get on. Perhaps they would then have a different attitude towards the market. By the way rentals are also called unearned income!! Its a business like any other and the government should respect that! We still have to WORK for every penny.
You above are a perfect example of why young people can’t buy properties! I’m glad they are making it harder for people like you. Properties should be for living and not for profit. Why should you own many while others own none? Also if you have been doing it for 40 years then you certainly saw the good times and your properties would have increased in value massively so there you go, you can sell them and you have your reward- that should be well enough greedy guys.
Not for profit? Anna, every housebuilder is “in it” for profit and there will alwasy be those who cannot buy the property available in the condition in which it exists. Last year we bought a former RTB council house which had a gorgeous orange bathroom suite, no central heating and minimal services, it was a mess. We did the place up from top to bottom to a high standard and a young couple, income high capital nil, bought it and with their new baby have a comforatable home in which they could have barely existed let alone live in any comfort. Should I have been penalsied for bringin back into use a decrepit property, that’s what the 3% SDLT surgage does?
I totally agree with your comments having been a landlord for 20 years. I have had to put up with tenants who have broken windows, smashed bathrooms, left a room of empty bottles and rubbish etc (I do not take tenants on DSS these are professionals) and any money made has been put back into paying the mortgage. If I decide to buy any future property I am now subject to higher stamp duty, I have lost the 10% wear and tear on furnishings plus I may not be able to claim the interest on the mortgage. It is strange how large organisations can avoid certain taxes and landlord are very limited on what they can claim.
You Sir, deserve a medal.
Well said! Many of the people in my generation (55 – 65) are buy-to-let landlords because they don’t trust the Pensions Industry and need some form of income to live on, especially now because our State Pensions are disappearing far into the future and the Government are taking the savings from denying our State Pensions for their other spending. It is so difficult to find a job for people aged over 50, and that’s a fact. Many people take the money to fund a buy-to-let property out of the growth from their own property, like I did, in order to have a small income and also provide a home for someone else. We are not all ‘Fat Cats’, some of us need to have a return on our money because we need something to live on, and if house prices increase then this is the return on our investment and incentive for the considerable risk we have taken.
I am one of those priced out first time buyers, we (my partner and I) have a good deposit that we have saved up and it’s taken us a long time, hence we are no longer ‘young’ people but in the same situation as ‘young couples’ but are back living with the parents at nearly 40 years old because we can’t get a look in on any houses, Most of the time, we cant even book viewings before each house sells, because the estate agents give all the investors first dibs.
It is because housing has become a money making scheme for retired people and those who don’t want to work that there are not enough houses for ‘young’ people, even if they can scrape a deposit together.
I’m sorry, I don’t accept that being a landlord is hard work, try doing 11 hour split shift zero hour contract factory work like some of us and then you’ll feel hard done by.
There’s loads of decent houses empty with to let signs where we are (Norfolk) but less than a handful for sale each month that ticks by and the prices go up and up. I’m sorry but no, Geoff Spinks, I don’t think you deserve a return on having loads of property and working sooooo hard? I think you should free up some desperately needed properties for first time buyers.
We don’t have a shortage of rental housing in this country, we have too many people who ‘need’ free housing and welfare which nobody wants to provide because there’s no money in it, which in turn has sucked up all the potential for student accommodation and those who work for it pushing the need for small affordable family homes into unaffordable realms, we also have lots of boarded up slums that landlords don’t seem to be interested in re-generating, surely if they invested in these, the council could then pay them to house all the people who ‘need’ it.
The rest of us who work hard like our parents did to be able to afford our own house are simply bu***red because there’s loads of well off retired people hoovering up all the small family homes to make an easy buck. But hey-ho as long as the banks are all doing well and landlords don’t suffer! eh?
Let’s get this straight, although Osbourne talks about ftb’s being “priced out” by BTL landlords he knows full well that corporate build and buy to rent landlords, who he is encouraging, are likley to demand higher rents and provide lower standards than mnay individuals. In the development where we have several apartments there is a healthy mix of owner occupiers (full and part time), tenants, and ftb/former tenants. In the corporately owned blocks there will be the monoculture of tenancy and no opportuniyt to buy, ever. Wealthy landlords without borrowing are totally unaffected by the borrowing cost restriction while it is proved beyond doubt that developers, who sell to a mixed purchaser group, require the off plan purchase that btl investors can and which ftb purchasers can not provide; ergo the result is likely to be fewer building starts. Most of my tenants are well paid including foreigh execs or advanced students (MBA etc) but all share one thing, a transitory stay which makes them unsuitable as purchasers, where are they supposed to live and what willl happen to all the local employees if they disappeared?
Totally agree with Geoff Spinks. I shall not venture into the buy to let market again. This “new tax” will put over £5k of a property of £150k, you work it out, its going to take nearly a year to get that back in rent.
The reason I went into this market was for a pension fund, now Osbourne has put a spanner in that plan.
It seems to me that if something is working for people this government have it in for them.
The comments all appear to be suggesting that this tax is relating to buy to let landlords and there to prevent them from monopolising the housing market which will allow 1st time buyers to enter the market place. However, from what I understand it’s not only buy to let landlords that are being affected. I have recently started buying properties that need work doing, doing them up to a good standard and then selling them on, often to first time buyers. However, if I’m understanding the rules correctly, I am also going to be liable to pay the extra stamp duty and yet I’m not preventing anyone from buying there first home, actually I’m probably helping them get a nice first home, where the work would generally be to much for them to do any way? Are my understandings correct. I’d appreciate views.
Actually Sharon, I’d say you are adding to the problem.
My partner and I would happily do up a house that needs some renevation and will take the cost of this into account when buying. The problem we have is not the state houses are in, it’s finding them in areas we want to live for a reasonable price. We are happy to decorate and buy a new boiler, carpet the floor and do all the things that we want to do to make this our first home, However if the investors get there first we find they generally put in cheap carpets or awful laminated flooring and a cheap sh*t kitchen so they can then sell the desperately needed property for a profit, however if I don’t want laminate floor and a cheap kitchen but I like the location of the house, I have to go in, rip up the cheap flooring, make the most of a kitchen I didn’t choose and pay over the odds for the pleasure. We are finding that some perfectly good (but a bit scruffy) 2 bed houses that we would have normally been able to afford, come onto the market about ten grand over our top budget just because someone with a disposable income has put a few carpets in and painted the walls with cheap magnolia paint, sorry but I can ‘refurbish a house’ in this way for a couple of hundred quid, doesn’t mean I should or that someone will thank me for it. You might be doing these houses up to a ‘good standard’ but your good standard is not necessarily what someone wanting to buy a house in your area wants. If they were given the option to buy the house at a relatively reasonable price and choose their own decor I think you will find that they can live without you.
It might be that in your area nobody is buying the houses but where I am, we have lots of badly done up empty ‘rental’ houses and nothing to buy. When a house does become available (and currently in our city It’s an average of two houses a day in a ten mile radius of the city centre, the investors get offered the first viewings by the estate agents, I can’t possibly imagine why?????
An interesting take to the recent stamp duty increase.