Don't penalise landlords until buy-to-let market recovers - new report
Until the UK's buy-to-let market rallies and regains strength around 2021, landlords should be helped and not penalised, a new forecast claims.
London is no longer the best location for landlords and investors should consider the latest changes in taxation when evaluating their next steps, analysis from Shawbrook Bank shows.
The report notes that "the wider slowdown in the housing market as well as a number of government interventions have had an impact on the sector", but points out that demand for privately rented accommodation is expected to increase in coming years.
Adam Male, director of lettings at Urban, said: "While raising professional standards and practices within the industry is, of course, a positive thing, this latest prediction of another three years of turbulence highlights how we need to help our buy-to-let landlords, not further penalise them.
"History shows that property will come good in the medium to long term and this latest report shows that with capital gain and rental income taken into account, investing in property is still worthwhile despite the short term challenges and suppressive actions of the Government."
The report notes that while tax and regulatory changes have contributed to the decrease in buy-to-let mortgages taken out, it adds that a cooling of the market would have happened regardless as the buy-to-let sector is "closely linked to the wider housing market which is facing more tepid price growth and a regional decrease in transaction levels, especially in areas where affordability ratios are stretched such as in London."
"Nevertheless, transaction levels have been noticeably lower since the introduction of the stamp duty surcharge," the report says.
"Given a generally weaker housing market and the numerous government interventions we predict that transaction levels will fall to around 57,500 by 2023," it points out.
"While the effect on overall house prices should be rather small, we expect yields to be higher compared to a scenario where the tax changes were not implemented, given that the lack of housing supply generated by buy-to-let landlords should drive up rents," it explains.
"The good news is that the professionalisation of the sector and more sustainable lending practices are likely to have positive effects in the long run.
"Given that the PRS will play an increasingly important role in the UK’s tenancy mix, there is still a market for buy-to-let landlords with a sustainable business plan and a good understanding of the legal and tax implications," it says.
It says that investors need to acknowledge that the regional focus of the sector is shifting.
A flat housing market and limited capacity for rental growth in London means that other places in the country offer better yields to investors, especially cities with large student populations.
It points out that Brexit adds a further layer of uncertainty with a number of City jobs at stake, so London’s housing market might be in for a further price correction while a clear drop in EU immigration is already discernible in the data, translating into lower demand in the PRS.
The report said: "We predict a downward trend in London, due to the challenges facing the professional investor and landlord community and their focus moving to building and maintaining a strong yield performance.
"This has led to a geographical shift in activity towards lower appreciating asset values that hold a higher yield, and a subsequent flight to regional areas that meet this criteria.
"Consequently there will be a natural slowdown in activity across the capital and we expect this to continue,’ the report adds.