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Buy-to-let market may be shifting, but it isn’t broken, say brokers

  • 07/06/2022
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Buy-to-let market may be shifting, but it isn’t broken, say brokers
Even though a record number of landlords appear to be selling up, brokers believe the fundamentals of the private rented sector would suggest buy to let is experiencing a correction rather than a meltdown.
A halving in the number of rental properties between March 2019 and March 2022, would appear to be a worrying sign for those with a vested interest in the buy to let market.
According to Propertymark’s latest survey, renters are frantically chasing fewer properties while landlords are quitting the market in their droves.

But brokers believe this may be a cyclical shake-out as landlord’s re-assess their position as the impact of tax changes which started to be phased in five years ago.

Mark Dyason, owner at Edinburgh Mortgage Advice, said these changes, combined with rising house prices, have acted as a catalyst to push the more reluctant or wavering landlords into selling up

Tax changes date back to April 2017 and the introduction of Section 24 of the Finance (No. 2) Act 2015. This made some types of property investment less profitable than they were previously with restriction on mortgage interest relief, which has been phased out.

From April 2020, landlords were no longer be able to deduct mortgage costs from  rental income, so all rental income earned will be taxable; instead landlords receive a 20 per cent tax credit which can be used to offset their tax bill.

Dyason said: “My experience is that landlords are exiting for a few reasons, namely the new tax regime that has cut income, the increased legislation that has raised costs and a housing market that has pushed up house values faster than rents have risen, so the yield isn’t as good.


End of the dinner party landlord


Another factor may be the age of landlords. Dyason said: “The Dinner Party landlord of the naughties is also getting to retirement age and will be looking at their options. All of this is a boon to first-time buyers or would be if there wasn’t a dozen for each former buy-to-let property hitting the market.”

Jonathan Burridge, founding adviser at We Are Money, agreed the tax changes were now starting to be felt in the pocket. “It is not the get rich scheme it was perceived to be 10-15 years ago. There is a growing gap between rent and purchase price which means larger deposits.”

Imran Hussain, director at Harmony Financial Services said his clients were also finding requirements from Local Authorities onerous. 

“The selective licensing costs introduced by many local councils are passed on to renters, whichever way we cut it. The changes in tax rules are also making some dinner party landlords who are nearing retirement age start looking at offloading properties whilst prices are as high as they have ever been, which in no way benefits first-time buyers as when they sell, another landlord simply purchases the property.

“Giving landlords an incentive such as reducing capital gains or putting a cap in place may allow some landlords to sell properties at a lower price, which could benefit first- time buyers but that is not likely to happen.

Ian Hewett, founder at The Bearded Mortgage Broker had a more pessimistic view and blames the introduction of energy performance certificates (EPC) as another catalyst for landlords likely to exit.

As I am a landlord myself, I have seriously considered exiting the market as the return on investment is not as strong as it once was.

“This, alongside potential Government focus on energy performance certificates, a lack of support with problem tenants and a failure to regulate poor landlords make this a volatile, combustible situation.

“As the available properties diminish due to demand, the cost of rent rises accordingly and will force some tenants out into the street at the hands of a few ruthless landlords trying to squeeze a massive profit. How is all of this fair for all involved? The onus is on the Government to do the right thing for all involved. Sadly they don’t have a history of doing that.”

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