Specialist Lending - February 2017  

The impact of Brexit and taxation on the market

This article is part of
The state of the UK's buy-to-let market

The impact of Brexit and taxation on the market

The past year has been rather unsettling for the UK’s buy-to-let market.

Firstly there were a number of regulatory and tax changes which unfolded, creating a degree of uncertainty among landlords and tenants. 

On top of that the UK took the surprising decision to vote to leave the EU, prompting many in the market to keep a close eye on the Bank of England’s reactions.

Many in the industry have been doubtful about whether the stamp duty changes that came in last year and the adjustments to income tax relief expected in April this year would have any impact on the buy-to-let market, either positive or negative.

Meanwhile, with Article 50 still yet to be triggered there is no clearer picture as to what a so-called ‘Brexit’ will look like.

BTL products

But according to the Moneyfacts UK Mortgage Trends Treasury Report there was a significant drop in the number of buy-to-let mortgage products in December, with 74 deals having been withdrawn from the market in one month – the largest reduction in product numbers since March 2009.

Charlotte Nelson, finance expert at Moneyfacts, observes: "Usually, the month of December is quiet, with providers gearing up for the holidays. This time, however, the BTL market has seen a surge of activity, with the number of BTL products falling back to July 2016’s levels.

"Withdrawals have not been limited to just a few providers, either, with the reductions having been spread across the board."

Is this a direct result of the taxation changes or something else behind the fast-reducing number of mortgage products?

Ms Nelson suggests: “With tougher affordability rules having come into play on 1 January and more changes due in September it is no wonder the BTL market has taken a hit. With the new rules reducing the amounts landlords will be able to borrow, it is little wonder that the 75 per cent loan-to-value sector has seen the largest reduction in product numbers, falling from 606 to 540 in just one month.

“Alongside tougher affordability, major changes to the way in which income from property rentals is taxed will be coming in April. Lenders are perhaps withdrawing products to get back to just their ‘core’ range in an attempt to wait and see what other providers will be doing in the run up to April.”

She has few words of comfort for the buy-to-let market, warning 2017 will be an “uncertain year”, and one which “could be a lethal cocktail for landlords”.

Donna Hopton, a director at Cherry, agrees the tweaks to tax have been somewhat life-changing for the buy-to-let industry.

“Taxation policy and in particular the government’s attitude to landlords, particularly individuals, is thought by many advisers to have had a landmark effect across the whole industry,” she remarks. “There has been an immediate impact on the market but moreover it is believed that this will continue to be very damaging to the market itself, as well as to key stakeholders, tenants in particular, for years to come.”