Keep the changes in perspective: most buy-to-let lending is refinancing, and stamp duty is levied only on purchases
It seems that not a month goes by without Chancellor George Osborne making a surprise announcement on the subject of buy-to-let landlords.
The latest proposal regarding an increase to the stamp duty land tax payable on an investment property or second home comes on top of the changes to mortgage interest relief for higher-rate taxpayers announced in the Summer Budget.
We are also yet to see what the Bank of England’s Financial Policy Committee will do once its powers of direction in the buy-to-let market have been ratified.
I can imagine that the people who rely on the buy-to-let market to make a living are becoming seriously worried. And, to be frank, there are a lot of people who do rely on it.
But while I am concerned about the cumulative effects of intervention, we need to put things into perspective. Many people talk about the growth in buy-to-let gross mortgage lending but the majority of it (around 60 per cent) is refinancing of existing mortgages. These transactions will be less affected by the changes because stamp duty land tax is levied only on purchases.
Also, landlords who refinance tend to have benefited from house price inflation over a number of years, so they often require much lower LTVs than those purchasing.
Fifteen per cent of the total stock of mortgages in the UK is buy-to-let, which will still need to be refinanced, especially as the base rate starts to rise.
Purchases, on the other hand, will take the full brunt of the changes and there is no doubt that this will make some would-be landlords think twice. However, I do not regard this as a bad thing. As I have written in this column before, when the conversation at dinner parties is dominated by people talking about their property portfolios, you know it is time to worry. The average landlord that we lend to has multiple properties and is in it for the long term.
While they will not be delighted by the changes, they will benefit from fewer speculative landlords in the game.
In my opinion, the Bank of England Stability Report is completely rational and makes perfect sense. I also take comfort in the fact that the FPC will wait to see what the cumulative effects of the taxation changes are before it takes action.
So while I think there may be some softening of the buy-to-let mortgage market next year, and a shift towards more professional landlords, I certainly do not envisage a massive drop-off.
With the underlying demand for rental property being so strong, any softening is not going to last for long.
Alan Cleary is managing director at Precise Mortgages