In a further blow to the private rented sector, the Government has made it clear that it will give the Bank of England sweeping powers to regulate buy-to-let mortgages.
It is just the latest in a series of whammies aimed at reducing the size of the industry, with inevitable effects for both landlords and agents.
From next April, landlords face a 3% Stamp Duty surcharge when they purchase.
The amount of tax relief they can claim is to be cut, with a change to landlords being taxed on turnover and not profits. And landlords who try to exit the sector will be stung by having to pay Capital Gains Tax much sooner than at present.
Yesterday, the Treasury launched its consultation on clamping down on buy-to-let borrowing, which includes draft regulation.
The Financial Policy Committee within the Bank of England would have powers to limit what they can lend to buy-to-let landlords.
This could be done by lowering loan-to-value and demanding a higher ratio of rental income over and above mortgage payments.
Chancellor George Osborne said that the consultation “is the next step in ensuring that the FPC has the tools it needs to protect our economy”.
The Residential Landlords Association reacted with anger, saying that making access to buy-to-let lending harder risked choking off supply of rental homes.
Alan Ward, RLA chairman, said: “There is no clear evidence that the property boom is caused by buy-to-let investors, when rising prices are mainly concentrated in London and the south-east.
“This is largely fuelled by foreign investors and speculators treating our property as a commodity.
“The RLA supports the principle of the Bank of England ensuring that lending does not pose a risk to the stability of the financial sector. It is important that lenders do not saddle landlords with debts which they cannot pay back. But landlord investment is essential to the supply of homes to rent.
“The overwhelming majority of landlords are responsible borrowers providing homes as a long-term business.”
The Council of Mortgage Lenders predicted the number of new buy-to-let mortgages will drop by 22% over the next two years.
It expects 116,000 new buy-to-let mortgages this year, the highest since 2007. Next year, it forecasts the number to drop to 105,000, and to 90,000 in 2017.
The consultation, which mortgage guru Ray Boulger has described as a “farce”, follows a Financial Times interview with Mark Carney.
In it, Carney signalled that he is “fearful of the risk that investors would all seek to sell at the same time if there were a general decline in house prices”.
Paul Smee, of the CML, said: “We understand the rationale for putting the macroprudential tools at the Bank of England’s disposal, but also recognise that this does not necessarily mean they will be used.
“In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated.
“We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”
Yesterday, the managing director of Hunters also expressed concern.
Glynis Frew said: “There have been a number of attacks on landlords recently, including the Autumn Statement’s 3% Stamp Duty announcement.
“Landlords as a whole are being portrayed as greedy investors who are looking to take advantage of tenants. This is simply not the case. The majority of landlords actually own one buy-to-let property and are your typical average Joes.
“It seems strange that no such restriction is in place for those with multiple properties of 15 or more.
“Such financial burdens will inevitably lead to a further rise in rents, as landlords will have to compensate for the extra measures somewhere.”
The consultation, which is open until March 11, can be found here
Comments (8)
Is it really the intention to punish anyone or is it the intention to protect the economy.
i have been in finance for 30 years and can tell you that many BTL landlords are not savvy to gearing and CGT and do not have a clue about the risks involved.
If they knew why would they do it in the first place when you can get a decent return on an ISA of 15% PA with nil voids and no tax to pay.
When rates go up many of our BTL sheep will panic and either default or sell which could cause another crash or at worst a blip. Looking at all of my advisor BTL cases and you can see they have nil equity in savings to get by. Sadly most of you house floggers dont see this
Dear Mr H,
You seriously need to read more of the blogs posted by us house floggers. We do see it, we recognise all financial investments with property being just one of them. It’s exactly how we analyse the sale price.
We call it “supply and demand”
Maybe you might have heard of it?
Of course it,s supply and demand. Like a crack dealer to a junkie. if you have the money you can have the product but beware the consequences.
The government are regulating supply to stop the Junkies winning.
Am I missing something here? This Government (and its predecessors) have singularly failed to address the chronic housing shortage. In fact each year it is getting staggeringly worse as we miss the target (that they set) by anywhere between 30-50%.
This lack of housing stock is the prime driver behind the huge price hikes we’re seeing in the rental market yet the Chancellor seems determined to put B2L landlords on the next stage out of town and make it as unappealing as possible for new investors.
With a woeful lack of public sector rental stock being built and the risk of existing landlords cashing in and selling their properties reducing rental stock even further, what does George Osborne think is going to happen to rents?
Will it make no difference? Will they go down? Will they go up?
I know where my money is.
What Mr LandlordsandLetting is saying then is this. You cant make money out of stocks and shares so buy property because they aren’t making any more of it.
Does that sound right?
Pretty much – see above 😉
The RLA above says,’The overwhelming majority of landlords are responsible borrowers providing homes as a long-term business.’
Osborne knows that. He’s just trying to clear us all out so that The City can get a piece of the Buy To Let Pie by taking over private rentals as corporate landlords.
I expand on this here:
http://www.landlordsandletting.co.uk/Blog/osborne-bashing-buy-to-let-to-help-his-city-friends/
I think that is probably wrong.
I think this is another incidence of “Kicking the can down the road”.
The problem is not between who owns and who rents – it is about the number of houses available in this country.
This is a temporary “stop-gap” measure while the government concentrates on building more housing stock.
It may have the unintended consequence of squeezing out new entrants into the BTL market, but I think the market will adjust.
And by “adjust” I don’t mean that greedy landlords will put their rents up – if a property is overpriced it will stay empty.
Most 1-3 property landlords are looking at long term investment values not monthly returns – as long as it covers outgoings they are happy.
It’s certainly a better option than chucking a couple of hundred quid at pension fund…