Landlords exit buy-to-let as 120,000 properties are sold
The increase in landlords leaving the sector since the Government imposed tax hikes are thought to have contributed to the fastest rent rises in 18 months.
More than 120,000 buy-to-let properties are thought to have been sold by landlords since the Government imposed higher taxes on the sector.
Analysis of UK Finance data by Savills found that 120,000 buy-to-let mortgages have been redeemed in the past two years.
The group blamed the situation on the raft of tax changes and new regulations introduced in the past three years which has made the sector significantly less attractive for individual investors.
The research comes as figures from the Office for National Statistics showed rents climbed at their fastest rate for 18 months in May.
The average cost of letting a home increased by 1.3% year-on-year, the biggest annual jump since November 2017.
Property commentators have warned that a mismatch between supply and demand is being created as landlords reduce their portfolios or exit the sector altogether, putting upward pressure on rents.
Investors are also thought to be hiking their rates in response to the higher costs they now face.
Why is this happening?
The Government has introduced a number of tax and regulatory changes to the buy-to-let sector which makes it significantly less profitable.
Among the changes are a 3% stamp duty surcharge on the purchase of additional properties, introduced in April 2016, a tapering of mortgage interest tax relief and an end to the ‘wear and tear’ allowance.
Other changes include a ban on charging fees to tenants, a limit on the amount tenants can be charged to repair minor damage to properties, and a requirement for more landlords to upgrade their properties to make them energy efficient.
Who does it affect?
The situation is bad news for both landlords and tenants.
As a result of the subdued state of the housing market, buy-to-let investors are no longer making significant capital gains on their portfolios, meaning they have less incentive to hold on to rental properties on which they are only breaking even or incurring a slight loss.
As a result, many are selling up. This means there are fewer homes available to rent, which is, in turn, pushing up the cost of being a tenant.
However, first-time buyers, who no longer have to compete against landlords for properties at the bottom of the housing ladder, could benefit.
What’s the background?
With private landlords exiting the sector, Savills is predicting ‘build to rent’ investors will step in and fill the void.
The properties are high quality and professionally managed homes that have been built specifically for renters. They have corporate landlords and longer tenancies, as well as a typically offering a range of extra facilities.
While there are currently only 30,000 build to rent homes that have been completed, with another 110,000 in the pipeline, Savills estimates there could be 1.7 million homes when the sector reaches maturity, accounting for more than a third of the private rented market.
Flat prices fall as first-time buyers shun starter homes
People purchasing their first home appear to be aiming higher up the property ladder
The price of flats is falling as first-time buyers leapfrog their way on to the second rung of the property ladder.
The average cost of a flat fell by 1.6% in the year to the end of April to stand at £199,018, according to the Land Registry.
By contrast all other property types increased in value, with detached houses seeing the biggest year-on-year gain of 2.7%, followed by semi-detached homes at 2% and terraced properties at 1.9%.
Property commentators attribute the trend to first-time buyers delaying the purchase of their first home, then buying a more expensive property further up the ladder when they do take the plunge.
There is also the suggestion that while young people are quite happy to rent a flat, they do not necessarily want to buy one.
Why is this happening?
Some of the fall in the price of flats can be attributed to the current absence of buy-to-let investors in the market.
But this trend has been playing out over the past two years, following a raft of government tax hikes that made the sector less profitable, and it is unlikely to account for all of the fall.
Instead, it is thought that first-time buyers who traditionally compete with investment landlords for homes at the bottom of the property ladder are also shunning flats.
With the average age at which people purchase their first home increasing, many are instead thought to be jumping straight to properties that would be suitable for a young family.
Who does it affect?
Reducing the number of steps they take on the property ladder is a smart move for first-time buyers.
The typical move involving a house purchase costs £12,000, according to Lloyds Bank.
At the same time, while first-time buyers are exempt from stamp duty on the first £300,000 of a property purchase, this tax break does not apply to those trading up the ladder.
As a result, delaying the purchase of a home until they can afford an average priced semi-detached house costing £216,938, will save first-time buyers £1,838.76 in stamp duty.
What’s the background?
One of the reasons first-time buyers are able to leapfrog a rung of the housing ladder is likely to be due to the range of initiative’s available to help them purchase a home.
Under the Help to Buy equity loan scheme, people can purchase a new-build property with just a 5% deposit, with the Government topping this up with a five-year interest-free loan.
With the typical semi-detached home costing 9% more than a flat, this loan would be enough in many areas of the UK to enable first-time buyers to purchase something higher up the ladder.
The Shared Ownership scheme, under which people can buy a share in a property of between 25% to 75% and rent the rest, also enables young people to afford to buy larger properties.