Landlords are more despondent than ever following a raft of tax changes that have hit the buy-to-let sector in recent years, new research shows.
According to Kent Reliance’s Buy to Let Britain report, just 41% of landlords are confident about the prospects for their portfolios following the recent taxation and regulatory changes – a fall from 44% in the previous quarter.
Despite the value of the sector rising by £68 billion in the last year to a record £1.3 trillion, the annual rate of increase of 5.5% is just half the level seen a year ago.
The slowdown in house price inflation has been a key driver, with the annual average increase slowing to 3.2% in the last year.
The research found that a quarter (24%) of landlords have found it more difficult to get mortgage finance this year following the Bank of England’s Prudential Regulation Authority’s new underwriting standards introduced in January. A further 6% have seen their applications rejected altogether.
Andy Golding, chief executive of OneSavings Bank, which trades under the Kent Reliance and InterBay brands in buy-to-let, said: “A perfect storm of weakening house prices, higher taxes and lending restrictions have knocked investors’ confidence. On top of this, investors are now being buffeted by the winds of political uncertainty following the election, and its impact on the economy.
“Uncertainty will pass, but the impact of changes to mortgage tax relief and underwriting standards will leave a more indelible mark on the sector. We believe these changes will alter the mix of landlords, creating a more professional and stable sector in the long-term. There are already some signs of consolidation, with highly geared amateur landlords most likely to leave, and we are also seeing investors take action to protect their margins.”
Limited companies
To cover higher costs landlords are setting up limited companies and increasing rents.
Kent Reliance said six in 10 applications for buy-to-let mortgages were via limited companies in 2016.
Running properties via limited companies means landlords are taxed as a company, rather than an individual, and can continue to offset all finance costs against rental profits.
Although not hitting the heights of last year, limited company applications have accounted for more than four in 10 loans so far in 2017.
Average rents have gone up 1.9% in the past year and now stand at £889 per month across the UK.
One third of landlords expect to raise rents in the next 6 months, compared to just 3% who expect them to fall. With rents rising, and house prices falling in the past two quarters, yields have edged up to 4.5%.
As a result of the pressures, 19% of landlords now expect to reduce their portfolios, compared to 13% increasing, as amateur landlords leave the market in response to the new tax rules affecting higher rate taxpayers.
“The fundamentals supporting the PRS have not drastically changed. Yes, first-time buyer numbers have been recovering, but there is still an underlying supply and demand gap across the country,” said Golding.
“Given the inability of any party to win a clear majority in the election, the implementation of a strategy to create a necessary housing boom seems unlikely. Affordability issues will therefore remain, and rental accommodation will retain its importance to those unable to take their first step onto the property ladder.”
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