Andy Knee (pictured), chief executive of LMS, examines how unfair competition with landlords has been harming first-time buyers’ attempts to take their first steps on the housing ladder
One of the greatest problems with the housing market at present is limited stock. There are not separate markets for first-time buyers and buy-to-let landlords. Both groups are trying to buy exactly the property.
In recent years, investing in property as a landlord has been a more attractive option than buying as an owner-occupier. Landlords enjoyed tax relief on mortgage interest payments on a scale equal to the country’s collective bill for housing benefit.
This meant landlords held an unfair advantage over first-time buyers looking to purchase the same stock. While we instinctively understood this, it was never measured. However, we can quantify this through the change in proportion of purchases made by the two groups over the past few years, as displayed in the Council of Mortgage Lender’s (CML) monthly lending trends data.
In 2010, there was over five times more lending to first-time buyers, compared to buy-to-let landlords. Over the next five years, this dropped considerably. In 2011, there was only 3.8 times as much lending to first-time buyers, which fell to 3.7 in 2012, then to 3.6 in 2014. Finally, in 2015, there was just three times more lending to first-time buyers than landlords.
That unfair competition is also reflected in trends in the ratio of remortgaging. Historic data from the LMS Remortgage Report shows that, in 2010, the ratio between owner-occupiers and buy-to-let landlords was 1.7. But by 2016, this had fallen to 1.5 – further evidence of the growing significance of buying-to-let as the segment expanded faster than owner-occupiers.
However, in the last year, the pendulum has swung too far in the opposite direction. Landlords are being penalised far too harshly – the Government has pulled the rug from under them.
April 2016’s changes to the tax system have placed landlords at a massive disadvantage. For example, changes to Stamp Duty Land Tax forced landlords to pay higher rates of tax on additional residential property purchases than in previous years as shown in the guidance documents in HM Revenue & Customs.
The proportion of purchases made by first-time buyers compared to that made by buy-to-let landlords is slowly reversing as the CML data highlighted, from 3.0 in 2015, increasing to 3.7 in 2016.
But the government hasn’t really improved the lot of first-time buyers. They remain massively disadvantaged as they struggle to save for enormous deposits. Many are relying on the “Bank of Mum and Dad” to purchase their first home. Recent research by Cebr highlights that the “Bank of Mum and Dad” will lend £6.5 billion in 2017, the equivalent to a top ten mortgage lender.
The incoming government must level the playing field between buy-to-let landlords and first-time buyers. A starting point would be to ensure that more first-time buyers can get onto the property ladder without needing financial help from their parents, by increasing LTV ratios.