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Landlords leave buy-to-let behind
Landlords have finally come to the conclusion that the buy-to-let sector is no longer worth the effort, says Sarah Moore.
Buying to let is probably no longer worth the hassle
(Image credit: fazon1)
It looks like the war being waged by the government on the buy-to-let sector is taking its toll landlords have finally come to the conclusion that the sector is no longer worth the effort. Growth in the number of outstanding buy-to-let mortgages is no longer keeping up with the number of new mortgages being granted, pointed out James Pickford in the Financial Times last week. This essentially means that although new people are continuing to enter the market, increasing numbers of landlords are deciding to sell their property in order to pay off their loans.
In fact, the gap between the two measures in the year to June 2017 was the highest it's been for ten years, according to figures obtained by estate agents Savills. Over the year to June, 78,000 new buy-to-let mortgages were granted, while the number of mortgaged rental properties only grew by 28,000. The "scale and consistency of the disparity which has now been widening over three consecutive quarters suggests a broader trend is at work", Lucian Cook of Savills told Pickford: it has become increasingly unprofitable to let out property.
It's obviously difficult to say exactly why these landlords decided to pay off their mortgages, but you don't need to be an expert on the property market (dinner-party conversations notwithstanding) to guess that the increase in people selling properties is, in some cases at least, a direct result of the government's crackdown on the sector.
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Over the past few years, we've seen the introduction of extra stamp duty on the buying of second homes; the rolling back of mortgage-interest tax relief; the tightening up of regulations on buy-to-let lending; and the impending ban on tenant fees (which many expect will mean higher costs for landlords, who will now have to cover the cost of admin such as contract renewal and referencing, or cover this via rent increases).
Finally, in Wednesday's Budget, Philip Hammond announced that first-time buyers will no longer have to pay stamp duty on homes worth up to £300,000, or on the first £300,000 of homes worth up to £500,000 putting buy-to-let landlords at a further disadvantage when buying property.
And in what looks like a further sign that lenders are struggling to entice landlords who are having second thoughts about buying a rental property, the number of buy-to-let mortgages available to landlords actually hit a ten-year high in September, according to data from Moneyfacts. The number of products available in the beginning of September was 1,735, the highest number since December 2007, and up nearly 30% on the 1,339 deals available in the same month last year. It remains to be seen whether there will be sufficient demand for this number of products.
Although it has become increasingly difficult to profit from letting out properties unless you happen to be a cash buyer it is possible to circumvent some of the government's measures. For instance, the tax relief rollback doesn't affect landlords who hold their properties via a company set-up, though anyone transferring their properties into a company would have to account for stamp duty and capital gains tax bills (as you'd technically have to re-buy your properties). Other landlords avoid the extra stamp duty charges by buying commercial property and converting it to residential.
So although the future of the buy-to-let sector doesn't look especially rosy at the moment, it's not dead yet. For some people, this type of investment will still prove lucrative, and buying properties to rent out is still a good way to diversify your portfolio. Still, Savills' numbers serve as a reminder to do some careful budgeting if you're still considering entering the market for the first time, or extending your property portfolio. For a lot of people, the investment just won't be worth the hassle anymore.
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Sarah was MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.
