Initial predictions following changes that included a 3% stamp duty surcharge as well as cuts to the level of tax relief that private landlords could expect on their mortgage interest suggested that the sector would take a big hit. The expectation extended to the effect of a rise in interest rates, with many predicting that average rental costs would go up along with any increase to the base rate (and as a result to the cost of the landlords ‘ mortgages).
However, the Council of Mortgage Lenders found, upon asking, that most landlords were not nearly as troubled by the changes as they were thought to be.
Indeed only 13% of those surveyed said that they would increase their rent prices if their mortgage interest rose by 1.5%. 60% said that their existing rental income was sufficient to be able to cover any extra expenses they would incur as a result of a rate rise. The remaining 40% had enough money tucked away to be able to cope with the extra demand.
The CML ‘s survey did find though that the changes announced will have something of a “damping effect” on the buy-let sector in general, slowing growth over the next few years.
A recent statement from the CML read: “We currently expect buy-let house purchase activity in 2016 to fall below its 2015 level, and for activity in 2017 to fall below the level seen in 2014.”
Chancellor George Osborne has, of late, been expressing worry about the effect that the ever growing amateur letting market is having on the housing sector in general.
The results of the CML ‘s survey, as well as one conducted by YouGov show that, while the changes implemented by Osborne will have some slowing effect on the sector, landlords in general are not quite as concerned as it was initially thought.
YouGov ‘s survey concentrated on the proposed limitations on tax relief for landlords. The plan is to restrict tax relief on mortgage payments so that by the year 2017, landlords will only be able to claim at the basic income tax rate, rather than the higher rate at which they are currently able to claim.
60% of those asked by YouGov said that they will “take no action” following the changes, and fewer than one in ten landlords will actually slow down their purchasing or shrink the size of their holdings as a result.
This means that worries about potential large scale quick sales of properties from landlords that would follow from an increase in interest rates have been reduced.
“This feels like a long way from the pro-cyclical ëcut and run ‘ behaviour described by December ‘s Financial Stability Report” said CML economist Bob Pannell.
Pressure on the amateur buy-let market is likely to continue as the government try and make every effort to moderate the housing market and boost home ownership at the expense of costly renting.