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Will Govt crackdown hit buy-to-let mortgage growth?


The buy-to-let mortgage market will continue to grow despite a swathe of Government crackdowns on the sector, experts say.

Last week the Prudential Regulation Authority published a consultation paper proposing to strengthen buy-to-let underwriting standards by insisting on a minimum level of stress testing to ensure loans remain affordable when rates rise.

The Bank of England’s Financial Policy Committee is also expected to bring in new rules for buy-to-let underwriting soon.

In his July Budget, Chancellor George Osborne announced cuts to tax relief on buy-to-let homes in an move to even the playing field between would-be landlords and owner-occupiers.

From 2017, relief for buy-to-let landlords will be gradually cut to 20 per cent from the present 40 or 45 per cent.

In his 2015 Autumn Statement the Chancellor added a 3 percentage point surcharge to stamp duty for buy-to-let properties, starting from April.

Hometrack director of research Richard Donnell says the Government changes might temporarily  stifle demand but will not hobble the buy-to-let market in the long term.

He says: “Buy-to-let will remain the future of the housing market but all these changes will slow the rate of growth in lending.

“In terms of the home purchase side of buy-to-let, there will be a year or two of consolidation where potentially we will see volumes fall back a little bit.”

But Donnell says buy-to-let investors will continue to be drawn to the profitability of the sector.

“One of the strongest underpinning factors has been the fact that you can get a 5 or 6 per cent yield from a buy-to-let property.”


The Buy-to-Let Club managing director Ying Tan agrees buy-to-let will remain a safe haven for investors despite taking a beating from Government policy changes.

Tan describes the reforms as “one-dimensional” and says: “I understand why they want to put controls on buy-to-let but it’s just not proportionate. They have done too many things in too short a space of time.

“But what other investments are there that can give you a return on your money?

“The profitability on buy-to-let has certainly reduced, but it’s still more profitable than many other investment alternatives.”

Tan says the market will stabilise at around 5 per cent growth a year. “In five years’ time it will be steadily increasing. Possibly it will be flattish this year, then increases of 5 per cent year-on year after that.”

National Landlords Association head of policy Chris Norris also questions the logic of the Government’s buy-to-let crackdown.

He says policymakers see no middle ground between owner-occupation and renting and believe buy-to-let landlords must be penalised to promote homeownership. “There isn’t any room in their philosophy for both to coexist in any way.

“The single biggest damage we’ve seen to our sector is the Chancellor’s second Budget last year. That’s the change to the way mortgage interest will be treated for tax purposes, and the lack of relief that will be offered on that.”

Norris says the changes will force landlords to raise rents. “What is inevitable is you’ll have a lot of people still in the sector, but their costs will go up. So the charge to their customers is going to go up too.”

The PRA’s latest proposals will be good for the sector, he says. “We were relieved to see the form the underwriting standards took. The FPC could direct greater intervention, but what we’ve seen from the PRA is pretty sensible.”


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. The profitability of the BTL sector will quickly evaporate once interest rates rise and landlords are unable to further increase rents. Also most of the smaller new housing units will be bought by first time buyers (FTBs) as investors shy away from purchasing further properties. In addition many BTL investors have already started to sell up like Fergus & Judith Wilson who have sold their portfolio of over a 1000 properties to an institutional buyer.

    House prices will soon start to freeze and as we get closer to 2020 when all the mortgage tax relief disappears and interest rate risewe are bound to see a fall in property prices in many regions. We will see more and more investors sell up to the millions of FTBs who are waiting to get on the “housing ladder” once residential property become more affordable again. This will keep house prices from totally collapsing.

    The Government and the Bank of England have done a wonderful job in putting a “final nail in the BTL mortgage market coffin”. Many financial journalists and lobbyists like me feel the death of tax relief on BTL mortgages has been long over due.

  2. Whenever I see these articles I look at the contributors. Surprise, they all have a vested interest in the housing boom continuing.

    The reality is both on the buying and renting side, property has become completely unaffordable in large swathes of our country. The yields on offer especially in the South East make buy to let probably one of the worst things you can invest in now.

    To say there is a huge bubble in the property market right now is an understatement.

  3. I should like to know the total debt against housing now and also, if segregable, a fair estimate against rental homes. I am fearful that a collapse will create banking vulnerability yet again.

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