Concentrate on housing supply, not buy-to-let

Mortgage Introducer

March 16, 2018

Kate Davies (pictured) is executive director of IMLA

IMLA’s recent white paper, ‘buy to let: under pressure’, highlighted concerns related to the UK’s buy-to-let sector.

Data showed that net investment in the buy-to-let sector had fallen from £25bn in 2015 to just £5bn in 2017 – a stark 80% decrease, in what appeared to be a direct reaction to government and regulatory intervention, including the 3% increase in stamp duty and removal of mortgage interest tax relief on BTL properties.

Those interventions were aimed at helping first-time buyers by influencing the balance between owner-occupation and the private rented sector.

They have clearly had some impact – but the private rented sector has an essential role to play in overall housing provision. IMLA has called for a period of consolidation to allow the changes to work through and for government to resist introducing further changes in the short-term.

Fundamentals remain sound

The fundamentals of the market remain sound for investors. While we have witnessed a reduction in BTL investment, the average property investor remains a great prospect.

The average BTL investor is older and has a higher income and greater wealth than the average owner-occupier. And, even after the adverse tax changes, according to the 2016 Council of Mortgage Lenders (CML) landlord survey, 81% of landlords expected to continue letting for at least five years.

We also estimate that the UK PRS has rental income of approximately £60bn a year. Assuming that investors pay a mortgage rate 3% above Bank Rate, their total interest bill amounts to £8.2bn a year. Mortgage interest thus averages only 14% of gross income across the PRS. On top of this, average BTL LTVs fell from 75% in 2009 to 60% in 2016.

Simply, landlords remain a hugely attractive borrowing demographic for specialist lenders. If appetite for investment returns, there is much that can be done to support the sector with smart financing.

Time for joined-up policy consolidation

The PRS has in recent years increasingly filled the gap left by a shrinking public rented sector.

Measures which tinker with the levels of owner-occupation versus PRS will in practice do little to benefit either – what is urgently needed is a properly thought-out, cross-departmental programme for new-build.

Much has been promised by successive governments and big numbers bandied around with regard to the numbers of dwellings that will be delivered by this or that target.

Last year’s White Paper, followed by this month’s further consultation paper on reforming developer contributions, are all steps in the right direction, but surely the government’s focus should now be on building those new homes rather than shuffling the pack in terms of who owns how much of the existing stock.

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