Buy-Let Rush Causing Increasing House Prices


February 2016

Buy-Let Rush Causing Increasing House Prices

New research from the Royal Institute of Chartered Surveyors suggests that the surge in demand for buy-let properties is far outdoing the rate at which new properties are coming onto the market.

This is causing house price to increase, as more and more landlords are fighting to snap up properties before the new stamp duty changes come into effect in April.

The changes will see a 3% surcharge to the stamp duty payable on buy-let properties, a policy introduced in an attempt to curb the growing rates of private landlords and boost home ownership as a result. As was predicted when the policy was announced, lenders have seen a surge in enquiries for buy-let mortgages; a surge which is likely to continue for the next two months.

Simon Rubinsohn, chief economist at Rics, said that "there is a rush on. There 's a recognition that the numbers will look more challenging when you have to pay another 3%."

January marked the 10th month in a row during which new enquiries increased, according to figures from Rics.

The number of new properties coming on to the market did go up in January compared to previous months, but not by enough, given the rate at which demand also increased.

According to Rics 's survey results, 74% of their members said that they predicted the number of landlords purchasing properties to continue to rise until April.

Rubinsohn said: "The near-term pressure on prices is, if anything, intensifying, despite a higher level of supply.

"How the tax changes planned for the buy-let sector over the next few years play out remains to be seen but there are concerns raised in the survey that some existing landlords will look to either gradually scale back on their portfolios or exit the market altogether as the more penal regime begins to bite.

"Against this backdrop, it is perhaps not surprising that the key Rics indicators points to further rent - as well as house price - increases."

While these changes that have cause this short-term boost in buy-let demand were intended to eventually boost home ownership levels, not everyone agrees that they will have their desired effect.

Jen-Michel Six, economist at Standard and Poor, said that the housing market is, generally, getting worse for those looking to buy, particular among younger generations.

He said: "Younger low- and middle-income households (would-be first-time buyers) are the ones affected most.

"As buying a home becomes ever more expensive, they are increasingly forced to rent, spending a large share of their income on accommodation and unable to save to buy a home or otherwise accumulate wealth.

"It also contributes to an even higher income inequality when accounting for housing costs. In fact, while income inequality fell slightly immediately after the crisis and has remained broadly stable since then, inequality when accounting for housing costs is on the rise again."