The damage inflicted on the buy-to-let market by the government’s squeeze on landlord finances is laid bare by an in-depth report into the sector published today.
Lender Kent Reliance says landlord confidence has shrunk alarmingly. Only 41% of those it canvassed say they have a positive outlook for their portfolios, down from 67% three years ago.
The Buy To Let Britain report also says a quarter of landlords are finding it harder to get buy-to-let mortgages following the tighter lending rules introduced by the Prudential Regulation Authority.
And faced with higher personal tax bills following the recent tax changes which restrict the amount of mortgage interest landlords can claim relief on, many are now moving their properties to limited company structures, the report says.
Kent Reliance says 44% of all buy-to-let loan applications it received in the first three months of this year were from limited companies.
And a quarter of landlords are considering moving their properties to the ownership of spouses in a bid to mitigate their tax liabilities.
“A perfect storm of weakening house prices, higher taxes and lending restrictions have knocked investors’ confidence,” says Andy Golding, Chief Executive of Kent Reliance’s parent company OneSavings Bank (pictured, left).
“On top of this, investors are now being buffeted by the winds of political uncertainty following the election, and its impact on the economy.
But despite the problems facing the sector, Andy says the increasing demand for rental property continues to drive growth in buy-to-let.
Landlords now own properties worth £1.3 trillion, up £68 billion, and that the average rent for a property has risen by 1.9% to £889 a month.
But the average return on a property has fallen by 7.8% to £17,804, although the sector remains profitable for many landlords; just 4% say they made a loss on their investment last year.
“The fundamentals supporting the PRS have not drastically changed,” says Andy Golding.
“Yes, first-time buyer numbers have been recovering, but there is still an underlying supply and demand gap across the country.
“Given the inability of any party to win a clear majority in the election, the implementation of a strategy to create a necessary housing boom seems unlikely.
“Affordability issues will therefore remain, and rental accommodation will retain its importance to those unable to take their first step onto the property ladder.”