The last few months has seen the government take various measures to attempt to slow down the buy-to-let market.
The last few months has seen the government take various measures to attempt to slow down the buy-to-let market. The intention is an honourable one as it aims to ease the housing shortage while increasing home ownership. However, the approximately 1.4 million current UK landlords now need to reconsider their investments because the introduction of universal credit together along with other changes have put increasing pressure on them.
In the Autumn Statement in late November, the government announced that anyone buying a second home or a buy-to-let property would have to pay an extra 3% in stamp duty from 1 April 2016. The extra charge applies above the current stamp duty land tax rates. Some £60m of the revenue raised from the increase in stamp duty is likely to be put towards helping homebuyers. On top of this, the dispensation of mortgage interest tax relief available for landlords is due to take effect in 2017, and from April 2019 buy-to-let landlords will also have to pay capital gains tax within 30 days of selling a property. Meanwhile, the Bank of England is also keeping a close eye on the market, as it remains concerned that the sector may pose a threat to the country’s financial stability.
There are some reports of landlords buying at the cheaper end of the market and others offloading whole portfolios. Most recently, a couple in Kent – Britain’s biggest buy-to-let investors – struck a deal to sell their entire property portfolio for £250m, highlighting what one commentator described as “the end of an era in the buy-to-let market.”
The Council of Mortgage Lenders is predicting that buy-to-let activity in 2016 will be below 2015 levels, and by 2017 it will be lower still. However, as the traditional landlord market looks under threat, institutional landlords are showing increasing interest in the rental sector as signaled by the rise of the so-called ‘build-to-let’ market. The build-to-let market consists of large, purpose-built blocks of flats that are professionally run. There is certainly a thirst among ‘generation rent’ for more professionally managed properties that offer services such as free WiFi and a gym.
A recent survey of investors carried out by Knight Frank indicated that they will be committing £50m to the sector by 2020. While some investors are accessing the market directly, others are doing so through funds such as those set up by M&G and Hermes.
But with new funder profiles come new attitudes to risk. The institutional investors and high net worth individuals who sit behind property funds will want to ensure that their exposure is adequately managed - solutions such as title insurance will no doubt constitute a part of their strategy.
And for niche lenders to compete in the sector, they must look to reduce operating margins as well as lending procedures, in order to establish an overall competitive position. Title insurance can help reduce overheads and time spent on due diligence during the loan origination process.
Attributed to Chris Taylor, Chief Executive, Titlesolv.
Keywords: Chris Taylor, Titlesolv, Buy-to-Let, Government, David Cameron, George Osborne, Tax changes, Home Ownership, Autumn Statement, Land Tax