The Council for Mortgage Lenders has reported that a total of 9,500 buy-to-let mortgages were taken out by landlords in January this year, ahead of the impending stamp duty increase in January.
This figure represents a 22% increase compared to January 2015, when 7,800 landlords took out mortgages. In cash terms, the value of the loans given out this January was 40% higher than last year, at £1.4 billion.
Former chairman of the Royal Institute of Chartered Surveyors, Jeremy Leaf, said: “The figures give us a taste of what is to come in the housing market over coming months.
“What we are seeing on the ground is people taking advantage of mortgage rates while they are low. With a relatively low number of transactions taking place, lenders are having to make up their numbers somewhere and are offering a plethora of attractive mortgage deals.”
As soon as George Osborne announced his draft of changes to housing policy including the 3% stamp duty surcharge on buy-to-let properties, most observers predicted a surge in buy-to-let mortgage lending levels until April, when the changes come into effect.
The most prominent of the changes is the stamp duty surcharge, which applies to all second properties. The surcharge starts at 3% but accumulates depending on the value of the property, with 3% being added at each stamp duty tier. This means that on the most expensive property, stamp duty will be 15% higher than it is at the moment.
Further changes include the removal of the wear and tear allowance that landlords currently enjoy. The wear and tear allowance lets landlords claim 10% of their rental profits back against ‘general wear and tear’, whether or not the portion (or anything at all) had actual been spent on repairs. From April, the wear and tear allowance will not be offered at a flat 10% rate, instead landlords will be able to claim back just against what they actually spend on repairs and maintenance.
There will also be reductions in the amount of tax relief that landlords can claim. Currently, landlords can claim tax relief on their mortgage repayments at the same level as they pay income tax. This is going to be gradually dropped to 20% for all landlords, starting in April 2017.
Rics current chief economist, Simon Rubinsohn, said: “Over the past three months, we have witnessed a surge in buy-to-let activity.
“Investors have rushed to purchase homes before the stamp duty surcharge comes into effect. It is inevitable that over the coming months, April’s stamp duty changes will take a little of the heat out of the investor market.
“While there remain significant doubts as to whether the government’s plans to encourage a more robust development and construction pipeline will be sufficient to address the housing crisis, long-term price indications for the housing market remain strong.”
Rics members have come to a broad consensus that over the coming months, the housing market will moderate, once the pre-April rush is over and the various tax changes start to have their desired effect.