Analysis reveals investment in UK buy to let sector has slumped 80% in two years
The buy to let property sector in the UK is under increasing pressure with a slump in investment caused by regulatory and policy changes, a new report suggests.
The analysis from the Intermediary Mortgage Lenders Association (IMLA) reveals that net investment in buy to let has fallen steeply by 80% from £25 billion in 2015 to £5 billion in 2017.
The report argues that this slump is a result of policy layering and regulatory changes which have deterred landlords from maintaining levels of investment in the Private Rental Sector (PRS), in turn pushing up rents and constricting supply.
It suggests that a period of policy consolidation is needed, to assess impact of recent changes, before any further punitive action is contemplated
The report points out that the 80% slump is a steeper fall than after the financial crisis in 2007 as recent tax and regulatory changes have caused a downturn in landlords’ activity and it notes the positive effect that buy to let has had on the PRS.
It estimates that between 2000 and 2017, UK buy to let landlords invested £289 billion into the sector, meeting rising tenant demand by bringing 1.8 million properties into the rental market. At the same time, real rents have fallen 4.4% across the UK.
However, new tax and regulatory measures introduced in the last two years, such as the 3% stamp duty surcharge on additional homes and the removal of mortgage interest tax relief, have deterred some landlords from expanding their portfolios and prompted others to exit the market, with this cumulative effect referred to as policy layering.
As a result of tax changes some 21% of landlords have indicated that they plan to reduce the size of their portfolios at a time when there are 4.5 million people relying on the PRS in England alone.
The report suggests that should demand for rental property continue to increase at current rates, driven by a lack of social housing supply and inaccessibility to owner occupation, this will lead to upward pressure on rents, disadvantaging tenants in the sector.
Kate Davies, IMLA executive director, said:
‘The raft of regulatory and tax changes that have hit the buy to let market in the last year have far reaching effects that are still yet to be fully realised. We know that the majority of people regard owner occupation as the tenure of choice, but for many this is not an immediate option. We also know that those who would in the past have rented from their local authority or Housing Association now need to rent privately.’
‘Various interventions by Government have apparently been aimed at encouraging more first time buyers and making investment in buy to let less attractive to existing and potential landlords. But the PRS plays a vital role in our housing supply and it’s essential that a sensible balance is struck, if tenants are not to be disadvantaged by shrinking stock and higher rents.
‘We urge the Government to reassess the impact of the recent far reaching regulatory changes to buy to let investment and allow a period of policy consolidation. Our nation’s PRS investors provide a vital service that’s vital to millions of UK tenants. We need to support and protect a sector that does so much for so many.’
Kindly shared by Property Wire