Government urged to halt buy to let changes

Government urged to halt buy to let changes
Aidan Crawley/Bloomberg

The trade association for lenders has urged the government to put a halt on any further intervention in the buy-to-let market amid evidence of a negative effect of regulatory and tax changes on the industry.

A report from the Intermediary Lenders Association warned that the private rental sector was still absorbing the adverse effects of the changes made to date and predicted they could force some landlords out of the sector, reducing tenant choice and raising rent costs.

According to Imla, small-scale landlords have been increasingly disincentivised by recent tax and regulatory changes and the number of single-property landlords made up just 21 per cent of the private rental sector today, down from 40 per cent in 2010.

The report also showed that professional landlords accounted for a heftier portion of the sector than small scale landlords for the first time, now representing 48 per cent of landlords, up from 38 per cent nine years ago.

Imla pointed to a number of catalysts for this market shift, including a highly constricted mortgage market during the financial crisis and a trend towards large institutions investing in build-to-rent accommodation. 

But primarily, the report stated that recent government intervention had made small-scale property investment less profitable. 

In fact, the 2018 English Private Landlord Survey from the government found that of those landlords planning to sell some or all of their properties, 61 per cent cited legislative changes as the reason.

Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016, which was closely followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority's tightened underwriting rules.

In January, Imla warned this year's tax return would be the first time many landlords would see the effects of the changes on their earnings.

Imla predicted the effects of current regulation would see the private rental sector shrink in the next decade.

This was after the report showed that buy-to-let lending for house purchases had recovered substantially from the financial crash, increasing by almost 250 per cent from £4.5bn in 2009 to £15.6bn in 2015.

But since then purchases have fallen by more than 40 per cent to £9.1bn, indicating the expansion of buy-to-let sector was slowing down.

Imla’s report also compared mortgage activity with the growth of outstanding buy-to-let debt and showed that without the continued growth in numbers of smaller landlords that was experienced at the start of the century, net growth in buy-to-let debt had dropped sharply.

Kate Davies, executive director of Imla, said: "The UK’s private rental sector is under significant pressure. 

"Landlords up and down the country are effectively having to fill the gap left by a shrinking social housing sector that is struggling to accommodate demand from lower income households.

"At the same time, it must continue to meet the needs of people who either want the flexibility of renting or who are not yet able to step onto the housing ladder in the face of increasing house prices and tighter mortgage regulation."