Buy-to-let  

Buy-to-let sell-off begins

Buy-to-let sell-off begins

Evidence has emerged that buy-to-let landlords are selling up or paying down their mortgage debt after being hit by a wave of tax and regulatory changes.

The number of outstanding buy-to-let mortgages is being outpaced by new mortgages being granted, suggesting some loans are being redeemed as investors sell buy-to-let properties, according to an analysis of UK Finance data by estate agent Savills.

The figures, which exclude remortgaging, show that in the second quarter of this year, 78,000 new buy-to-let mortgages were granted, but the overall number of mortgaged rental properties only rose by 28,000.

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The net difference of 50,000 properties is the biggest in 10 years.

The trend – which constitutes a reversal of that seen for the majority of the past decade – began to emerge in the third quarter of 2016.

It follows the introduction of a 3 per cent stamp duty surcharge for additional property purchases in April 2016 and the announcement that income tax relief for landlords would be gradually phased out by 2020, starting in April 2017.

A further blow came with the Prudential Regulation Authority’s (PRA) introduction of more stringent affordability rules on 1 January this year, followed by stricter underwriting guidelines for portfolio landlords brought in by the end of September.

Since the changes were introduced, it has been reported that one in five landlords were considering selling their properties.

They also have to factor in the 0.25 percentage point increase in the Bank of England’s base rate, which was announced on 2 November.

It was met with predictions of a rise in arrears in the buy-to-let sector.

According to Savills, the number of buy-to-let investors is set for a dramatic 27 per cent drop from 75,000 to 55,000 over the next five years.

Jane King, mortgage adviser at London-based Ash-Ridge, commented: “It is exactly what is happening and what was expected. Under the new PRA rules, a lot of lenders are insisting that entire portfolios meet loan-to-value criteria, so if landlords have one property skewing the figures the only way is to pay down that mortgage into line.

“A lot of landlords are getting advice from accountants who are just saying 'pay them down'. Over the next two or three years there will be no advantage in having mortgage interest payments whatsoever, as they are not deductible any more.

“We are trying to remortgage a lot of them, but at the same time they are paying down a lot of it.

“Unless the government does something really drastic, it will continue. There are no new landlords in the market and rents are going up.”

simon.allin@ft.com