The buy-to-let sector is not an imminent threat to financial stability but performs a vital function in the housing market
Since the Chancellor delivered the first blow to the buy-to-let market in summer 2015 – restricting on a phased basis mortgage tax relief to the basic rate of income tax and reducing the wear-and-tear allowance – we have stressed the importance of a cold appraisal of facts, particularly in the Treasury consultation on powers of direction, rather than feeding off the heated anti-landlord rhetoric appearing in some quarters.
The buy-to-let market is not an imminent threat to financial stability. In terms of loan-to-values, for example, there has been no sharp rise since 2010, unlike the mainstream market.
The consultation paper pointed out that the loans were interest-only and there were risks associated with that. It also warned that write-offs and repossession rates for landlords were double those of owner-occupiers but overlooked the fact that both were quite low. There are some legitimate questions about the data used for the paper.
We believe the role of the Financial Policy Committee in maintaining market stability is of paramount importance and to the benefit of borrowers and lenders alike. But we would urge the Government and others to pay greater heed to the important social role of the private rental sector. Where will the households go if this sector shrinks?
In the meantime, it is vital for buy-to-let landlords to continue taking steps to discuss with their advisers the implications of recent changes.
Highly leveraged landlords in particular should explore how to insulate themselves better.
Be in no doubt, however, that buy-to-let remains an appealing long-term investment and one that performs an essential function in the UK’s highly constrained housing market.
Peter Williams is executive director of Imla