In April 2016, new tax measures went into effect which were designed to curtail UK buy-to-let activity, imposing higher operating costs on landlords. It appears as though reports concerning the death of the UK’s buy-to-let sector have been greatly exaggerated, new data suggests.
The introduction of specialist buy to let mortgages in 1996, made it easier for people to become private landlords. According to the Telegraph by 2014, one in five UK homes were owned by private landlords, with this figure expected to increase to one in three by 2032, exacerbating the UK’s ongoing housing shortage. The UK’s property supply is rising, with the number of new homes available climbing by 41% in August 2016, but even now, there is a strong shortage, forcing more people to rent rather than buy.
The UK government has introduced new measures designed to limit buy-to-let growth. In April 2016, the stamp duty on second homes increased by 3% and now, landlords cannot claim a 10% ‘wear and tear’ reduction from their taxes, being required to claim individual expenses instead. Furthermore, landlords will not be able to deduct mortgage interest from their tax bills by 2020 and these measures were expected to raise operating costs for buy-to-let landlords, reducing profit and curtailing activity.
The Financial Times suggests that buy-to-let landlords are now “staging a fight back against government efforts to rein in” the market. For instance, 700 landlords recently launched a legal challenge against the mortgage interest rule change, which was thrown out, suggesting it defies the principle of commercial taxation. It looks like sector activity is picking up, according to property portal Rightmove.
News source The Week reports that Rightmove saw its website enquiries climb by 30% from June to September 2016. Also the real estate portal said that during this same period, the number of UK properties available to rent increased by 6%. Consequently, average national rental values rose by 0.5% in the third quarter of 2016, with London seeing average rents increase by 0.7% in this timeframe.
Passing on costs
Speaking out, Rightmove’s Head of Lettings, Sam Mitchell said: “Investor activity has bounced back following the stamp duty changes, though some agents report that many investors are looking to knock sellers down on their asking prices to make up for the additional stamp duty they now need to pay.” The Week also pointed out that overseas investor participation in the UK’s property market, especially in London commercial real estate, has also bounced back since the UK’s recent decision to vote to leave the EU.
Staying the course
The UK’s residential property market is going strong. Despite expectations, the market expanded in the aftermath of Brexit. With prices continually rising, the government’s attempts to limit UK buy-to-let activity appear to be proving unfruitful. Sellers can afford to provide buy-to-let landlords with advantageous deals, allowing them to bypass rising costs and accrue profit from renting out to tenants.