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Insight & Opinion

Buy-to-let market set to recover from governmental penalties in 2018

Author: Staff





The past 12 months has been a very difficult period for landlords operating in the private rented sector in the UK, and although this is likely to affect sentiment and borrowing this year, long-term positive sentiment and a strong outlook means recovery will be seen as early as next year.

Over the past year, the government has hit buy-to-let investors with a double dose of difficult tax changes. First, in April 2016, ministers brought in a three per cent additional levy on Stamp Duty for those who are buying property to rent out. And then this April, it brought in another change, when investors were no longer able to deduct their mortgage interest from taxable income, which made it more expensive to operate in the rental market.

This has affected sentiment in the market, as was expected, although it is a real positive that expectations remain in place for the market, and investment therein, to recover once again in the coming years.

For 2017, forecasts from the Intermediary Mortgage Lenders Association (IMLA) shows that even at a time when gross lending in the property market is expected to hit an all-time high, 2017 will be a period of contraction in terms of lending for the private rented sector and its buyers.

Drop in lending in 2017

The data from the organisation said that over the coming few months, the buy-to-let market should decline to see lending of £38 billion in 2017 as a whole. This represents a six per cent fall when compared to the year before, and is indicative of a market that is adopting a wait and see attitude as the government makes it more expensive to operate as a landlord.

And while this is not good news for the property market in the UK, with more landlords needed in order to address a shortage of homes, this downturn in borrowing from buy-to-let investors is actually expected to only be a short-term thing.

In 2018, the IMLA predicts, the market will return to a place of strength, and lending levels will start to climb again. It believes that lending in 2017 will drop as low as it can before the market rebounds and finds its strength again, and in 2018, it expects to see lending levels hit £40 billion-plus again as more investors flood back into the sector.

“The buy to let market suffered under the changes introduced by the Cameron government, but ultimately demand for private rented accommodation means that lending volumes are likely to rise again in the future. While the changes have certainly made things more difficult for landlords, property remains an attractive and comparably stable investment, which will support long term growth in the sector,” said Peter Williams, IMLA’s executive director.

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