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