Many are asking if the Government’s actions will help people onto the ladder, because affordability is yet to be addressed
Earlier this year a sea of change hit the buy-to-let market. The announcement on tax relief changes, followed by new stamp duty levels and finally the PRA consultation paper on underwriting standards for buy-to-let mortgages, signalled the Government’s intention to halt the rise of the private rented sector at the expense of owner occupation.
Now the waves have settled, many are questioning whether this action will really help borrowers make it onto the housing ladder because the issue of affordability is yet to be addressed.
There is no guarantee that stifling the buy-to-let market will lead to an increase in owner occupation. Tougher regulation on lending means some people can afford only to rent, even if they wanted to buy, because they are unable to borrow enough to buy the properties that may reappear on the market.
In response to the raft of changes, lenders are altering their rental calculations. In a nutshell, they require landlords to receive more rent in relation to their mortgage payment, which could place an even greater burden on tenants.
Furthermore, mounting pressure on landlords is also a cause for concern for prospective first-time buyers. Increasing stamp duty on buy-to-let property while reducing the available tax relief could, as market forces dictate, lead to increased rental costs – eroding any hope of saving for a deposit.
Recent figures suggest the average rent across most of the UK in June was close to £773 a month and in London the average was £1,575. These prices represent a year-on-year increase of 3.5 per cent and 3.9 per cent respectively, according to figures from referencing firm Homelet.
Nevertheless, the stamp duty changes are substantial and could raise billions of pounds for the Government over the next few years. How it chooses to distribute this excess capital will undoubtedly be watched closely by landlords, lenders and first-time buyers in the years to come.
Karen Hedges is mortgage manager at First Complete