Buy to Let – Dead or Alive?

Very much alive, but not kicking

(This was originally written in July 2018 so please excuse any outdated numbers!)

Buy to Let (BTL) is a crucial element of the housing mix in the UK. The sector is currently worth a massive £1.4 trillion (Cluttons), and is supported by around 2 million landlords. Currently, one in every five households lives in rented accommodation (approximately 4.5 million). In recent months (if not years) the health of the BTL market has taken up a lot of column inches Some articles are very negative (https://www.telegraph.co.uk/investing/buy-to-let/tax-mortgage-crackdown-cuts-buy-to-let-investment-80pc/) some are more positive (https://www.independent.co.uk/news/business/news/housing-market-buytolet-landlords-investors-record-high-despite-tax-hike-stamp-duty-a8292146.html) about the future.

In my opinion, no one really knows what is going on in the property market. Our views are generally skewed by our own personal circumstances. However, it is fair to say that landlords are sailing into a storm of ever-greater Government interference and regulations (https://somersetestatesreit.co.uk/blog/taxing-times-for-landlords), and that it is getting significantly harder to make a success of investing in BTL property.

I believe the Government & Bank of England have two main aims they are looking to achieve with these tax and regulation changes:

1. “Professionalise” the residential investment market by using higher taxes and stricter regulation to remove the “amateur landlord”.

2. Move property ownership from investors to home owners, in particular first time buyers - who are also benefitting from Stamp Duty relief (https://www.gov.uk/government/publications/stamp-duty-land-tax-relief-for-first-time-buyers-guidance-note).

It appears that the Government and Bank of England have been successful in their efforts to stymie the growth of the BTL market in the last couple of years. Data-driven evidence is slow to emerge in the BTL market, however, in June 2017 the Council of Mortgage Lenders (CML) predicted that BTL lending in 2018 would fall from a forecasted £38 billion to £33 billion (https://www.cml.org.uk/news/press-releases/gross-lending-up-12-in-may-and-new-cml-buy-to-let-forecast/). In addition, acccording to data from UK Finance, December 2017 saw a 17.2% fall in the number of new BTL mortgages issued (https://www.ukfinance.org.uk/first-time-buyers-in-2017-reach-decade-high-but-market-cools-in-december/).

However, there is little evidence that they have been successful in encouraging landlords to sell up: the majority seem to be taking a ‘wait and see’ approach -possibly hoping that the Government reverse many of the tax increases (personally, I do not see this happening for a variety of reasons). Speaking to estate agents, it appears that any BTL property that does come onto the market is snapped up by another investor, rather than first time buyers.

In my opinion the BTL market is still very much alive, however, it is far from kicking. Landlords face ever increasing challenges and interferences, as well as tough market conditions. However, it is still possible to make a success of investing in BTL. In order to do so landlords need to research their target locations, work hard to ensure their numbers stack up and make sure that they are on top of all the regulation changes.