May 3, 2016

Stamping out buy-to-let is a dangerous move

Stamping out buy-to-let is a dangerous move

The Government curbs the buy-to-let market at its peril, writes Benjamin Rochelle.

The buy-to-let boom has grown at a rapid pace in recent years, doubling the size of the private rented sector since 2004. In the midst of a housing crisis it now provides some three million homes for those not yet able to afford to buy their homes and, during a time when the stock market has performed so poorly, offers a largely reliable method of providing a successful income in old age.

However, recent interventions from the Treasury and the Bank of England threaten to drastically hamper the buy-to let market and with that the private rented sector. A 3% hike in stamp duty on second homes and buy-to-let investments came into force on 1 April and, under the Finance Act 2015, rules that allow landlords to offset all of their mortgage interest against their tax bill will be phased out from April 2017.

Last week the Bank of England’s financial supervisory unit, the Prudential Regulation Authority (PRA), suggested tightening rules on the availability of buy-to-let mortgages, after a review into the market raised concerns about risk-taking.

The main proposals from the PRA will make sure lenders check that rental income is sufficiently higher than the monthly mortgage cost, take into account additional costs – such as management charges and lettings agency fees – when calculating the income, and run tests on borrowers to make sure they can withstand an interest rate rise to at least 5.5% over five years.

The Bank of England hopes that the stricter lending criteria, bringing buy-to-let mortgages closer in-line with owner-occupier mortgages, will reduce the amount of buy-to-let lending by 10% to 20% in three years’ time.

Inevitably the first three months of 2016 saw a major rise in interest from landlords looking to snap up a buy-to-let property in time to beat an increased tax bill. But we can now expect a sharp slowdown as changes in tax and stamp duty come into effect. This is most likely to be felt in London and the South East where the Treasury’s changes add £16,000 to the cost of buying the average home as an additional property.

Meanwhile the new Bank of England rules are likely to have the biggest impact on the same region. Ensuring that rental income is sufficiently more than the monthly mortgage cost is difficult in London and the South East because house prices are so high. This means that smaller property investors who rely on considerable loan-to-value mortgages will face trouble.

The Government’s measures to curb buy-to-let will come at a cost, not only for those who will now face higher rents, but for the wider economy. The Treasury Select Committee has expressed firm opposition to the moves.

In its February report it said: “A failure to ensure that individuals have access to a well-functioning, affordable rental market will inhibit labour mobility and reduce economic activity.”

The committee challenged the stamp duty surcharge and reduction in tax reliefs available on mortgage interest payments claiming that these would be a deterrent to investment in this sector, and with it “act as an enduring constraint on the supply of privately rented properties”. Certainly the rise in rents will add to the financial burden already on young tenants.

Furthermore, it may put thousands of tenants’ security at risk as buyers will want to sell with vacant possession.

It is clear that there is a home ownership crisis. But the real key is building more homes and freeing up planning restrictions not further regulatory intervention into the private rented market.

As the Treasury Committee has noted Labour, Conservative and Coalition governments have for decades recognised the vital significance of maintaining confidence in the buy-to-let and private rented sector, well aware of the destructive consequences of regulatory interventions for employment and economic activity.

This Government must do the same.

5.00 avg. rating (93% score) - 1 vote
  • Shadow Warrior

    Hammond is continuity Brown. He is a hand-wringing lefty looking for clever wheezes to raise more tax in ways that people don’t immediately notice.

  • captainslugwash

    I predict the Budget will attempt to show the Left how caring the Tories are, and it will be funded by screwing over the working man.
    If Corp Tax comes down, I bet Divi tax will be going up.
    I would love to be wrong.

  • skynine

    We really need to look at tax credits, in particular in work tax credits that encourage people to work part time to preserve the benefits. 45% of women work part time and I would hazard a guess that tax credits are the main cause. This leads to low pay, low skill work in supermarkets and the retail sector including coffee shops. The government needs to get back to the employer paying people to do a job for economic reasons rather than to get onto the tax credit ladder. Like all government benefits it distorts the market and diverts government expenditure into non productive areas.
    The refrain that the government has cut expenditure is not true, it increases every year as more and more goes into welfare.

  • MrVeryAngry

    fat chance

  • MrSauce

    So, when wouldn’t we want a ‘budget for growth’?

  • Rob

    I note that the UK Government has just slapped on a 25% tax charge for anyone moving abroad and wishing to move out their private pension from the UK.

  • SonofBoudica

    The Remoaners will do their utmost to sabotage the Government’s negotiating position. They do not want a successful outcome; they want a failure. They want to be able to scream “Told you so!” from the rooftops.

  • EnglandLaments

    Thank goodness for Andrew Neil, the one media hack who scares the pants off the established politicians. He was spot on with Heidi Allen!

  • joshuafalken

    I had a very long, hard, studied and considered look at the hope, care and aspirations of all Europeans, before I voted to get the UK out of the toxic grasp of Brussels.

    The European Union and it’s charge of “ever closer union” has borrowed and spent its way to oblivion, whilst enslaving the working and middle classes in debt.

    The central control mantra of the unaccountable Brussels ruling elite, delivered through a mixture of socialism, globalism and corporatism is entirely responsible for the populist revolt by the millions of “Just About Managings” across Europe.

    We must remember the ultimate goal of socialists, globalists and corporatists is control, not prosperity. see https://mises.org/blog/goal-socialists-socialism-—-not-prosperity.

    Social equality and economic growth always fail under central control and fighting against the Brussels doctrine on behalf of all Europeans is why I voted for Brexit.

    Britain has a long history of helping Europeans depose tyrants and Brussels is just the latest incarnation.

    Britain is the most racially advanced and accepting society on the planet. We welcome those in need and those that can help us with open arms and a smile; that will not change.

    We are also one of the most innovative, talented and open societies in the world, which why everyone wants to live here. However, we cannot fit everyone in, so we have to have clear, balanced and fair immigration policy which is where the arguments start between the monetarists and humanists will never be reconciled.

    I thought long and hard before coming to the conclusion that leaving the EU was in the best interest of all Europeans, as Brussels is toxic and cannot be reformed from within.

    Also, I find it insulting that people who voted Remain have insufficient faith in British ingenuity, compassion and skill to get a good deal for us and see the Europe that we love get a better deal from Brussels and the reform that European people deserve. https://mishtalk.com/2017/03/29/bad-brexit-deal-better-than-no-deal-mathematical-idiocy-odds-of-no-deal/ and https://www.worldheadlines.info/2017/03/after-brexit-9-reasons-to-be-bullish-on-great-britain/

    The politics of left verses right are dead because neither have delivered the promised economic growth and social mobility for anyone, but themselves. The populists are not selfish per-se, they just want to take back control of their own destiny that left/right politicians have freely given away and/or exploited for their own ends. In my constituency, the local residents group are taking over the councils as politicians ignore voters, so Westminster should beware of the well-organised, local resident independents at the next election. This is a peoples revolution which should be shouted from the rooftops, but liberals remained deafened by the socialist, globalist and corporatist “vested interests” that have spectacularly failed us and are obediently crying foul and fake.

    There will be an initial unpalatable inflationary cost to fighting globalism and rolling back central control that few appear to have factored in, but dismantling failed left/right vested interests should eventually free libertarian socially-conservative capitalism from the shackles of TBTF corporatism to feed economic growth and social mobility.

  • agdpa

    The EU usually makes the wrong decision – on immigration, on freedom of movement, on the euro, on the Ukraine, etc. etc. Little hope it will get Brexit right.

  • brownowl

    Eh? Reference please!

  • Neil2

    Sod caring. Screw the spongers and breeders. Kill HS2. Stop all “green” subsidies. Slash “foreign aid” and walk away from the EUSSR with immediate effect.

  • Rob
  • John C

    What a confused article. It conflates surveillance by the security services with poor defences against fraud.

  • John C

    Err, it’s the UK that’s leaving the EU, not vice versa.

  • John C

    Me, now. ‘Growth’ is a manic obsession.

  • La Face Nord

    Mr Redwood – are you aware of the Biased BBC website? It’s been exposing their agenda for a long time, but I imagine you’ve been well aware of the BBC’s agenda for quite some time…

  • Contact Rvtech

    The post is great

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