Lenders are warning the government not to deter investment in the UK’s buy-to-let sector, as it could harm tenants more than landlords.
The report from the Intermediary Mortgage Lenders Association (IMLA) examines the key issues facing the main segments that make up today’s mortgage market. Assessing the possible impacts of July’s controversial BTL tax changes, IMLA argues a higher tax burden for landlords – which will push some into losses after tax and raise the effective tax rate on their buy-to-let above 100 per cent – may skew the market in favour of owner-occupied house hunters, by reducing the price that landlords are prepared to pay for any given property.
“The risk, however, is that these changes and the threat of tighter BTL mortgage regulation will constrain the supply of available rental properties at a time when the fundamentals of population growth and low housing supply are driving an increase in demand, and that institutional investment will fail to make up the gap,” cautions the IMLA.
The IMLA report shows total lending across the mortgage market this year was running below its 2014 level from January to May. Since then, there has been a sharp recovery and 2015 “may be shaping up” to be a mirror image of 2014.
The buy-to-let sector has enjoyed the most robust rebound, but this must be placed in context of an 81 per cent decline after the recession between 2007 and 2009. This compares with a 60 per cent drop in remortgaging volumes, 56 per cent among home movers and 53 per cent among first time buyers over the same period. BTL lending volumes remained 40 per cent below their 2007 peak in 2014, and the IMLA argues that it is responding to rather than driving growth in tenant demand in the private rental sector.
“While buy-to-let has rebounded, the remortgage market has been slow to respond, but conditions are ripe for a resurgence,” adds the IMLA, whose analysis shows Q2 2015 remortgage volumes were up 11 per cent on the previous quarter to record the best performance since 2009. Indeed, low mortgage rates and the prospect of a rate rise in the near future from the Bank of England has prompted many to rush and remortgage their home while conditions are favourable.
Peter Williams, Executive Director for IMLA, comments: “The mortgage market is having to navigate some difficult terrain, so it is encouraging to see signs that the lending recovery remains on track after a sharp slowdown this time last year.
“Comparing market segments, first time buyer volumes have actually held up best over the period from 2007-2014, while buy-to-let has been clawing its way back from a deep recession low as demand for private rental properties has grown. Until there is a broader policy push to tackle the chronic lack of supply, homeowners and renters in both private and social sectors will all remain vulnerable to the effects of the current lack of fully joined-up policy making.”