UK tax relief restrictions will temper house price growth
The restriction of mortgage interest relief for UK buy-to-let (BTL) landlords will, in the short term, curb lending in the sector, which currently makes up 15%-16% of mortgage lending, Moody’s Investors Service said in a special report. At the same time, 2015 is on track to become the best year for BTL mortgage deal issuance since the credit crunch.
“The government’s decision to restrict BTL mortgage interest relief reflects a willingness to put investors and owneroccupied borrowers on a more level playing field, given that the latter cannot claim tax relief on their mortgages,” observed Emily Rombeau, a Moody’s analyst.
“First-time buyers’ affordability has declined, as they struggle to get on to the property ladder. Affordability constraints and demographic changes have increased the share of privately rented housing - this sector’s evolution has strongly contributed GBP 3.2 bln. A number of building societies have also tapped the securitisation market: Coventry Building Society and Co-operative Bank PLC in 2012, with Mercia No.1 PLC7 and Cambric Finance Number One PLC; Leeds Building Society in early 2015, with Guildford No. 1 PLC. Precise Mortgages also entered the BTL securitisation sphere this year; the recently established specialist lender has already completed two BTL transactions for a total amount of GBP 426 mln since January 2015.
Moody’s research says that, while UK house prices increased by 3.5% in the first half of 2015 (according to Nationwide), most regions, except for Northern Ireland and Yorkshire & Humberside, experienced a further slow-down in annual price growth in Q2 2015. The monthly year-on-year growth in UK house prices gradually declined to 3.3% from 11.8% in the 12 months to June 2015.