The Intermediary – February 2025 - Flipbook - Page 25
BUY-TO-LET
Opinion
The value of
buy-to-let has to
be seen in context
T
his summer will
mark 10 years since
former Chancellor
George Osborne first
announced sweeping
changes to the tax
regime that had allowed landlords to
claim tax relief on mortgage fees and
mortgage interest payments.
A decade later, and private landlords
are still under what some might
characterise as a political onslaught.
In Rachel Reeves’ first Budget as
Chancellor of the Exchequer, she
announced she was upping the
Stamp Duty surcharge applied to the
purchase of second homes and all
additional properties from 3% to 5%.
In Scotland’s Budget, the Additional
Dwellings Supplement under the Land
and Buildings Transactions Tax was
also put up, from 6% to 8%. Wales also
hiked its surcharge by one percentage
point. Landlords may have let out a
sigh at the news of what looks like yet
another reason not to invest in buy-tolet (BTL).
It may not be that simple, however.
The Intermediary Mortgage Lenders
Association (IMLA) published its
outlook for the residential mortgage
market as 2024 drew to a close. In it,
the trade body pointed to a healthier
buy-to-let mortgage sector than we
have seen in a while.
IMLA’s analysis showed that the
BTL market recovered last year aer a
sharp contraction in 2023, with gross
lending estimated to have reached
£33.2bn in 2024, 10% above the
2023 total.
Buy-to-let house purchase lending
showed a slightly faster increase of
12% to £9.6bn. In contrast to the wider
market, buy-to-let remortgaging rose,
reflecting improved affordability.
The trade association has forecast a
beer year again, expecting a 14% rise
in buy-to-let lending to £38bn in 2025,
rising again to £42bn in 2026.
This is partly down to many of
those remortgaging off very low rates
onto much higher ones having gone
through that pain.
Those who have struggled to meet
affordability criteria in the higher rate
environment have either rebalanced
loan-to-values (LTVs) across their
portfolios or sold properties to balance
their books.
It is also likely that growth in buyto-let lending will be driven by limited
company borrowing.
A moving picture
While higher Stamp Duty may deter
some landlords from purchasing
further buy-to-lets, it is likely to be a
mixed pictures depending on where
those properties are based. Lower
capital values on average in the North
of England and South West will be
far less affected than landlords in
expensive areas like London.
According to the Office for National
Statistics’ (ONS) November index, the
average house price in the North East
stood at £168,791, while in London it
now stands at £511,279.
Stamp Duty on the first example, if
purchased as a buy-to-let, is £8,439.
On the second, it is £38,627. That
difference has a significant effect on
the commercials of a deal, and there
is no doubt that it’s affecting values.
Prices in the North East were up 5.9%
over the year to November 2024 while
in London they came down 0.1%.
The upcoming Renters’ Rights Bill,
expected to come into force at some
point this year, is much more likely to
put landlords off further investment
across England and Wales.
As it stands, the legislation
will abolish Section 21 evictions,
strengthen tenants’ rights and require
STEVE GOODALL
is managing director at e.surv
landlords and agents to publish an
asking rent for their property while
banning the acceptance of offers made
above this rate.
Government has also pledged
to reinstate the requirement that
all private rented property must
achieve a minimum Band C rating
Energy Performance Certificate
(EPC) by 2030.
Whether or not you agree with
the plans, they have the potential
to dramatically shi the pricing
dynamics in the rental market. That
will feed into tenant affordability
constraints, especially in areas where
supply is low and geing lower.
According to the Trust for London,
from April 2021 to December 2023
some 45,000 rental properties were
sold without replacement, accounting
for 4.3% of London’s privately
rented homes.
Properties are leaving the rental
market at a much faster rate in the
most affordable locations to rent.
During 2023, the stock of private
rented sector homes in the most
affordable parts of the capital reduced
by 3.3% a month as a proportion of
available listings, compared to 2.6% a
month across the rest of London.
This is a very complex set of factors
affecting the private rented sector, and
10 years of constant change has taken a
severe toll.
There is a massive undersupply of
rental stock, and with rising operating
costs, that is likely to continue. For
lenders, the value of buy-to-let must
be seen in this context. ●
February 2025 | The Intermediary
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