Think buy-to-let is in de­cline? Here are three rea­sons to be pos­i­tive

The Daily Telegraph - Your Money - - FRONT PAGE - Sam Barker

Land­lords may well feel that there is very lit­tle to be pos­i­tive about when it comes to the future of the buy-to-let sec­tor. An ex­tra stamp duty charge on sec­ond homes, tougher mort­gage af­ford­abil­ity checks and more strin­gent tax rules have all com­bined to hit land­lords’ prof­its.

At first glance, the changes ap­pear to have throt­tled the growth of new buyto-let lend­ing. In De­cem­ber 2016 the now-de­funct trade body the Coun­cil of Mort­gage Lenders (CML) ex­pected to see new buy-to-let lend­ing lev­els of £38bn in both 2017 and 2018. But these fore­casts were low­ered to £35bn in 2017 and £33bn in 2018.

And the lat­est fig­ures from the Bank of Eng­land show buy-to-let shrink­ing as a share of new mort­gage lend­ing.

Sav­ills, the es­tate agency, says the num­ber of buy-to-let mort­gages com­pleted in 2017 was 74,900, a drop of 26pc on the pre­vi­ous year.

But ex­perts say there are rea­sons to be op­ti­mistic about buy-to-let’s future.

The col­lapse in new buy-to-let lend­ing looks grim, but it may be mis­lead­ing.

The Bank of Eng­land cur­rently ex­cludes buy-to-let loans through lim­ited com­pa­nies from its new lend­ing sta­tis­tics. But since April 2017 there has been a surge in land­lords buy­ing through lim­ited com­pa­nies as a means to lower their tax bills.

Fig­ures from Mort­gages for Busi­ness, a bro­ker, show that 77pc of all buy-to-let ap­pli­ca­tions in the first quar­ter of 2018 were made through lim­ited com­pa­nies, an all-time high.

More lenders are also of­fer­ing en­hanced deals at the end of land­lords’ terms, en­cour­ag­ing them to stay rather than re­mort­gage else­where. Land­lords who stay are not in­cluded in new lend­ing fig­ures pub­lished by ei­ther UK Fi­nance, which ab­sorbed the CML, or the Bank of Eng­land.

Fi­nally, the new lend­ing fig­ures are also be­ing driven down by new Pru­den­tial Reg­u­la­tion Au­thor­ity’s af­ford­abil­ity checks, which took ef­fect in 2017 and mean many land­lords can bor­row less than in the past.

Rental demand re­mains high. An­drew Mont­lake of Coreco, a mort­gage bro­ker, said: “We aren’t build­ing enough homes. Peo­ple can’t buy and so there is demand for rental prop­er­ties and for land­lords.”

John Heron of Paragon, a mort­gage lender, agreed. He said: “Demand is strong and looks like it will be well sus­tained into the future.”

Re­search by BM So­lu­tions, a spe­cial­ist buy-to-let lender, found that the av­er­age gross rental yield was 5.2pc in the sec­ond half of 2017.

How­ever, when the pe­riod’s in­fla­tion fig­ure of 2.9pc is fac­tored in, land­lords made real re­turns of 2.3pc, com­pared with 4.3pc for the same part of 2016. John Goodall of Land­bay, a lender, said: “The re­turns on buy-to-let are not what they have been in the past. But prop­erty ap­pre­ci­a­tion has fallen as well. In the post-fi­nan­cial-cri­sis era, the re­turns on most as­sets have also fallen.”

Rental demand in the UK is still high and shows no sign of an im­mi­nent de­cline

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