Buy-to-let investors: don’t fight the government

The government has given another clear signal that it has the buy-to-let business firmly in its sights. Avoid at all costs, says Merryn Somerset Webb.


Beware: the government has buy-to-let firmly in its sights.

We've warned against getting too enthusiastic about the buy-to-let business for some time. The political tide is turning against it as is quite clearly shown by the stamp duty surcharge on second properties and the huge changes to the tax deductions allowed on mortgage interest and wear and tear.

But this week brought another clear signal that the authorities have buy-to-let in their sights. The Bank of England's Prudential Regulation Authority has produced new rules on buy-to-let mortgage lending.

Lenders will now be required to make sure that borrowers will still be able to pay their mortgages if interest rates were to rise to 5.5% up tofive years after they take it out. They will also be obliged to make sure that the income from a property will be 125% of the mortgage payments.

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Some lenders will already have similar stress testsin place (it isn't a surprise the consultation began in March,and lots of lenders have already moved to 145% to takethe falling value of buy-to-lettax breaks into account). But many won't.

The result will be fewer buyers in the market (particularly in the Southeast where yields are super low) and in time a fall in house prices.

That's bad news for current buy-to-let investors hoping to get out with significant capital gains, but good news for first-time buyers looking to get into the property market in a year ortwo.

It's also something that might to begin to redress the wealth imbalance I mentioned in anearlier post.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.