Buy to Let Rent Increases

Changes to Buy-To-Let to Hit Private Rents?

August 24th, 2018

There have been a number of authoritative comments that rents are going to rise by as much as 15% in the next few years in light of the government tax changes on Buy to Let (BTL) landlords. Is this really the case and if you are in a rented accommodation, what might it mean for you?

The government is in the process of rolling out a series of tax changes that impact the residential buy-to-let market. In April 2016, the Government added a 3% stamp duty surcharge for private landlords and, a year later in 2017, removed tax relief on mortgage interest for higher rate tax payers. This double blow to private landlords and may see significant changes to the market, including a market withdrawal by smaller landlords with lower yield properties who find that it becomes a less-attractive investment. In addition, the recent rise in interest rates will hit many landlords who are not on a fixed-rate deal, making their investment less attractive.

Plainly, the tenant is going to be the loser in the long term as these effects produce an aftershock in the market, stemming from two main issues:

  • An overall increase in rent. Any increase that the landlord sees will inevitably be passed on to the tenant, and that can only mean an increase in rent in the long term.
  • A reduction in rental properties. Once an investment ceases to be secure, many will simply pull out to invest in some other project.  This could see a reduction in the overall rental property market, thereby increasing the potential rental of available properties in a dwindling pool.

Some sources have stated that this reduction in available properties is perhaps a much greater threat than prospective rent increases, as it will seriously affect a tenant’s flexibility.  Estimates revel that landlords have been offloading properties at the rate of around 4,000 per month since the Government initiative, and a ministry of Housing report shows that available properties have dropped by 46,000 in 2017, the first major drop since 1988. While these properties have been put up for sale, buying is not always an option for many in the housing market an will have done little to alleviate the housing shortage, particularly in the South East and other major urban areas.

Furthermore, data from the UK finance organisation shows that there were just 5,500 new buy-to-let mortgage deals completed in March 2018, so the properties that investors are selling are not necessarily returning to the rental market.

The general prognosis is that the rental market will continue to be squeezed in terms of available housing, and those which are available will become more expensive to keep.  But with affordable housing unavailable to may new buyers, the market is starting to creak badly.

The Buy to Let boom that has consumed the country for several decades is ending abruptly, and tenants are likely to be the big losers as they face trying to secure rental properties in an ever-decreasing market pool and paying higher rents too when they do find somewhere.

The changes to the Buy to Let market coming from both Government and the Banks is going to bite harder as the full impact of changes hits landlords, and by the time that the changes are fully in place around 2023, this together with interest rates hitting possibly 2% to 3%, the future is distinctly uncertain. And that is not good news for either tenants or landlords.

However, investing in property for BTL has predominantly been a long term play for a majority of investors who see property investment as a supplement to their wider pension strategy. If landlords can ride out this period of uncertainty they are sure to reap the rewards in the long term. With rents likely to rise and with property prices to remain stable this could enhance the yields which landlords will be getting in the future making it an attractive proposition once again. If you’d like to discuss your Buy to Let options, call us on 01908 465100.