The number of amateur landlords buying new properties is in dramatic decline as recent tax changes come into effect.
According to figures from trade body UK Finance, there were 5,500 new buy-to-let home mortgages completed in May, 9.8 per cent fewer than May last year. This could very well be because of the 3 per cent stamp duty surcharge which means those buying rental properties must pay thousands in tax.
There was £700million of buy-to-let lending in the month, 22.2 per cent down year-on-year.
Jackie Bennett, director of mortgages at UK Finance, said: ‘Purchases in the buy-to-let market continue to be constrained by recent regulatory and tax changes, the full impact of which have yet to be fully felt.’
Buy-to-let remortgages increased slightly, climbing from 12,7000 to 14,600 in May for the same month last year. By value this was £2.3bn of lending in the month, 21.1 per cent more year-on-year.
The cost of Buy-to-let
Unsurprisingly, this has considerably slowed the market for amateur landlords. The extra £7,500 in tax is money that they cannot put into a deposit on the property and most buy-to-let mortgages require at least 25 per cent down.
The deposit on a £250,000 buy-to-let would be £62,500. New stamp duty rules put the bill up to £72,500. This is even before any conveyancing and mortgage fees.
Another change and quite a drastic one also, adds rental income to a landlords other income a deciding factor in what rate of tax they pay pushing some up into higher brackets. Overall the changes mean a landlord pays tax on revenue not profit.
Last month research from the Ministry of Housing revealed that the number of privately rented homes in England fell by 46,000 to 4.79 million last year – the largest reduction since 1988.
Number of First-time buyers increasing
Where buy-to-let investors are missing out, first-time buyers appear to be stepping in.
There were 32,200 new first-time buyer mortgages completed in the month, 8.1 per cent more than in the same month a year earlier. The average first-time buyer is now 30 and has a gross household income of £42,000, according to the research.
‘There are still challenges in the form of stamp duty costs and affordability, but the slight dampening of house prices coupled with continued low mortgage rates has begun to encourage more home owners to finally make the move they have been putting off for a while.’
There were 36,000 new homeowner remortgages completed in the month, some 7.1 per cent more than in the same month a year earlier. The £6.3bn of remortgaging in the month was 6.8 per cent higher than last year.
Jeremy Leaf, estate agent and a former RICS residential chairman, said: ‘These strong numbers from UK Finance reinforce the view that interest rates are likely to rise sooner rather than later.
‘Unfortunately, any imminent rate rise is likely to have a disproportionately negative effect on already brittle confidence.
‘On the ground, business is still one month up, one month down, with no clear pattern other than a fairly fragile price-sensitive market where confidence is weak at best.’