The recent tax measures announced by the government in a bid to dampen the buy-to-let market will cause one out of every 10 landlords to sell up, according to new research from the Council of Mortgage Lenders.
The YouGov survey found that in addition to this, two out of every 10 landlords will reduce or stop adding to their portfolio altogether.
In last summer’s Budget, Chancellor George Osborne announced that the amount of tax relief landlords can claim on properties will be reduced to the basic rate of income tax from April 2017. There will also be an increase in stamp duty of 3% for landlords and second home owners in April this year.
Bob Pannell, chief economist at the CML, said landlords would most likely mitigate the reduction in tax relief by raising rents.
“Indeed, the latest YouGov research corroborates our view that the overall impact will be to lift rents higher and to narrow the availability of homes in the private rented sector.
“The direct effects appear modest, but are likely to be reinforced by the stamp duty changes, announced in the Chancellor’s autumn statement. The rapid succession of recent tax changes also risks having a significant indirect effect on investor sentiment, altering the direction of travel for buy-to-let lending and the further expansion of the private rented sector.”
The Bank of England has expressed concerns that the buy-to-let market is 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.
Bank of England Governor Mark Carney said in December the central bank was prepared to take action over concerns that large numbers of landlords could sell if prices were to crash again. It is widely expected that the Bank will raise interest rates later in the year.
Respondents were also asked how they would cope if there was a 1.5% rise in mortgage rates over the next three years.
Three-quarters of landlords questioned said they foresee no problems in servicing their mortgage payments, while one in 10 said that they would increase rents.
Landlords identified a range of strategies for coping with higher mortgage costs, including the positive cash flow that rental payments currently provide and ready access to contingency funds.
Pannell said: “In its December financial stability report, the Financial Policy Committee recognised the possibility of sector disruption, when it expressed concern about what might happen if mortgage rates were considerably higher than today’s prevailing rates.
“As it happens, the scenario it chose to focus on – the likelihood of landlords’ selling their rental properties in the event of their investments turning sour – appears a little contrived.
“Reassuringly, even though the most likely context for higher rates would be a strong jobs market and incomes growth, only 13% of landlords appeared to rely on raising rents.
“This feels like a long way from the pro-cyclical ‘cut and run’ behaviour described in December’s Financial Stability Report. None of which is to say that landlords are in a comfortable position.”
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