The buy to let industry has undergone radical change over the past couple of years.
Tax changes have impacted many landlords.
But what is the true effect of tax changes on the buy to let market?
Media coverage of landlord reaction has been mixed.
Speculation suggested that landlords would quit buy to let in their droves. Meanwhile, there has been a growing trend for landlords to move property ownership into a limited company for tax purposes.
Furthermore, recent data from property advice website The Property Hub, suggests that many existing landlords are undaunted by recent changes and the threat of a no-deal Brexit, with 77% planning to increase their portfolios over the next 12 months.
Andrew Turner, chief executive at specialist buy-to-let broker Commercial Trust, puts the story straight on the true outcome of tax changes on buy to let.
“It was inevitable that tax changes, which could potentially suppress profitability in the short term, would impact upon the perceived desirability of buy to let investment. The expectation was that this would be most keenly felt by those with fewer properties, because adjusting to the changes would be a more painful process for new investors or those with less experience.
“However, the simple fact is that buy-to-let remains a solid investment option, with strong potential for an attractive and profitable return on capital invested.
“Investors should not be deterred from buy-to-let. Demand for rental housing is stronger than ever, the cost of debt remains relatively cheap and the housing shortage is likely to continue. Even so, any investment decision requires care and expertise.
“Many headlines have focused on one and two property investors who have left the market because they have found it difficult to adjust.
“The real story has really not been about buy to let becoming unattractive as an investment option,” he insists.
What is the reality?
Landlords have time and again proven that they are willing to adapt to change when necessary.
Recent data from UK Finance, also indicated an evolution in buy-to-let, rather than a mass exodus.
Jackie Bennett, director of mortgages at UK Finance, revealed in November, that forecasts for 2018 buy to let purchase activity, were likely to fall about £3 billion short of expectations, stating:
“This is undoubtedly the impact of various tax, regulatory and legislative changes that have happened to landlords in the buy-to-let sector.”
However, Bennett went on to add that buy-to-let remortgaging exceeded forecasts for 2018, with lending likely to reach £27bn, representing a £3 billion surplus on what was anticipated.
“The market continues to grow and in Q2 2018 increased by 6% over 2017 levels. UK Finance statistics revealed that much of this growth was in remortgages, which grew by 15%, while purchases dipped by about 12%,” Turner said.
“In early August 2018, the Bank of England decided to increase rates by 0.25%. Although there has been limited market reaction so far, I expect to see market rates increase, because margins are wafer thin.
“The Bank of England has said as much itself, with repeated messages that rates are anticipated to rise gradually over the long-term.
“Landlords have responded to this and there has been significant interest in fixed rates, useful to guard against rate rises. Investors are likely to continue to do this as their renewal dates come up and therefore I’m sure the remortgage market for buy-to-let will remain buoyant over the coming months.”