As we step into the political uncertainty of 2019, it’s worth looking back over the significant changes the buy-to-let market has already negotiated in recent years to give a clue to the trends we might expect over the next 12 months.
Over the last four years, buy-to-let has experienced an unprecedented level of regulation and tax intervention. In 2015, it was announced that the income tax relief landlords were able to claim on residential property finance costs would be replaced by a basic rate relief tax reduction, with a phased introduction starting in 2017. Then in April 2016, HMRC added to the tax burden with the introduction of a 3% stamp duty land tax (SDLT) surcharge for purchases of rental property and second homes.
In January 2017, extra regulation was layered upon these tax changes with the PRA introducing new underwriting standards for buy-to-let mortgage contracts, including stricter rules on the affordability tests to be used as part of the assessment of a buy-to-let mortgage application. This was followed later in the year by the second part of the PRA’s new underwriting standards with the launch of additional checks for portfolio landlords owning four or more mortgaged buy-to-let properties.
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More recently, we have seen new minimum energy-efficiency standards for privately rented property, the extension of mandatory licensing for HMOs and the introduction of a minimum bedroom size for HMOs.
It’s been a significant amount to deal with over a short period, but – despite some negative speculation – buy-to-let has survived. Some landlords have decided to step away from the market and we have seen changes to the dynamics of the sector, but the majority of investors remain committed, demand for rental property remains strong and so does buy-to-let.
Remortgage activity has dominated buy-to-let lending and there has been a growing proportion of limited company buy-to-let as landlords have looked for a tax efficient vehicle for their investment. We’ve also seen increasing demand for less standard types of property investment that can deliver higher yields, such as HMOs, holiday lets, multi-unit blocks and refurbishment projects.
So, what can we expect over the next 12 months?
For the first time in a number of years, buy-to-let landlords can look forward to a period without intervention and so among the political instability, there is at least a clear outlook for property investors. The market has demonstrated its resilience and landlords have developed an appetite to take a more creative approach to their investment.
Even if the macroeconomic environment dampens the property market, demand for rental property will remain strong and this – combined with a proven resilience and more committed and creative investors – should help to make it an exciting 12 months for buy-to-let.