In recent years, the number of homes brought by buy-to-let landlords has plummeted following a series of punishing tax reforms and changes to mortgage interest relief. In the past three years, the number of landlords purchasing buy-to-let property has decreased by an astonishing 33%.
The market has long demanded high entry costs, attracting professional investors with a sizeable budget – but with lenders relaxing their criteria and offering attractive low-rate deals alongside decreasing competition, could now be the perfect time for recreational investors to dominate the market and compete with their professional counterparts?
Stagnation of the buy-to-let market
Research has revealed that in the first half of 2018, landlords across Britain purchased 64,260 properties which was a 13% decrease compared to the same period last year and a 33% decrease compared to 2015. Although trends have been seen nationwide, some areas have suffered more than the others with the number of property purchases in the South East falling by 45% alongside Scotland with a drop of 44%. Despite the daunting statistics, the North East has somewhat managed to buck the trends with a decrease in property purchase of only 16%.
In light of market trends, lenders have begun to relax their criteria and offer attractive low-rate deals in a bid to increase activity in the buy-to-let sector. Mortgage lenders are now offering the lowest rates on record, with research revealing that the average rate for five-year-buy-to-let mortgage deals has hit an all time low of 3.4%. The buy-to-let sector, although slow, does continue to attract investors despite market uncertainty thanks to the alluring rates offered by lenders.
Why aren’t buy-to-let landlords purchasing property?
It is in the wake of punishing tax reforms and changes to mortgage interest relief that landlords’ enthusiasm for expanding their portfolios with buy-to-let property has been dampened. It was in 2016 that a 3% surcharge on stamp duty rates was introduced, meaning that landlords who purchased a second property would fall victim to savage changes.
Changes to mortgage interest tax relief the following year further crippled the buy-to-let market. The changes, which will gradually replace pre-tax deductions on mortgage interest with a 20% tax credit by 2020, will result in a heftier tax bill for landlords.
An extension to mandatory House of Multiple Occupancy (HMO) licensing in October has also been felt across the buy-to-let sector with an additional 177,000 landlords now requiring a license in order to comply with new regulations.
Landlords are still recovering from these punishing tax changes and reforms and as a result, are choosing to avoid the buy-to-let market and seek fairer and cheaper alternatives that allow them to diversify their portfolio. In order to boost the sector, lenders are enticing landlords with attractive rates whilst the government continue to negotiate reforms that will benefit both landlord and resident.
Just like any other investment, decisions regarding money shouldn’t be rushed and landlords and investors should take time to research. Understanding the market in the area you chose to invest in can help you to make predictions and avoid any pitfalls. For example you can work out the price of similar properties in the area and the cost of rent and price your property accordingly.
With Brexit negotiations slowly coming to a close, the future of the property market remains uncertain, but for those looking to invest the buy-to-let sector can be extremely lucrative, offering unprecedented returns.
Hopwood House are specialists in property investment, with a wide range of investment property for sale in major UK cities including property investments in Liverpool, Manchester, Sheffield and Birmingham.