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Bank of England backs bright outlook for BTL growth

Sunday 29 May 2016

The Bank of England has given landlords reasons to be cheerful in its latest report on the UK housing market by suggesting that regulatory changes will not impact on BTL.

The May 2016 Update ‘Agents’ summary of business conditions’ reported their predictions for the market in the wake of stamp duty surcharge increases.

Industry contacts reported seeing ‘a pickup in house purchases by BTL investors in Q1 as they (investors) sought to complete purchases ahead of April’s changes, and expected activity in Q2 to be correspondingly subdued.’

The update said: “Over a longer horizon, the majority of contacts did not expect the tax changes on their own to lead to a substantial reduction in BTL purchases.

“That reflected positive expectations of rental growth and of the continuing attractiveness of BTL relative to alternative investments.”

Agents met with over 100 housing market contacts in March and April to gather intelligence on the outlook for the housing market and assess the likely impact of tax changes on BTL activity - including the increase in stamp duty introduced in April 2016 and the planned reduction of tax relief on BTL mortgage interest payments from April 2017.

One note of warning was sounded: some contacts flagged up the risk that ‘some landlords did not fully appreciate the implications of reduced interest relief from April 2017 — which was seen as the more significant of the tax changes.’

The update said: “That could lead to downside risks to activity in the sector further out, if it subsequently led landlords to make a sharper adjustment to their portfolios.”

The contacts expected transaction numbers in 2016 to be ‘comparable with 2015’, but predicted that transactions would ‘remain below levels prevailing before the financial crisis’, due to a shortage of newly built and secondary market housing supply, and ‘especially of alternative homes often sought by older homeowners’.

The effects of an ageing population on transaction numbers were also discussed (people tend to move homes less frequently as they grow older), along with a reduced tendency among homeowners ‘to move unless required to by their circumstances’.

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