The bell has tolled for buy-to-let lending as we know it.
John Goodall is chief executive of Landbay.
The bell has tolled for buy-to-let lending as we know it. So say the pessimists in the wake of the second major attack on the buy-to-let market since last May’s election. But as we look forward to 2016, we at Landbay see the pint as half full not half empty. Yes the buy-to-let sector as a whole and those us who finance it will need to adapt, but this is a case of reform not revolution and it will create winners as well as losers.
The Summer Budget cut to tax relief and the stamp duty changes announced in the Autumn Statement are aimed at the amateur landlord who dips their toe in buy-to-let. At the time of writing, we are waiting on the consultation for the stamp duty changes but the measure to exclude landlords with larger portfolios is a clear indication that the changes are not aimed at professional buy-to-let investors. Professional landlords who use a limited company structure are also unaffected by the mortgage interest tax relief reforms from the Summer Budget.
So the net effect will be to separate oil from water, leaving the professional landlords (and institutional investors) to fill any gaps left by the withdrawal of some amateur landlords from the market. But even this change is likely to be subtle rather than sudden.
As much as the Government is incentivising home ownership in favour of renting, the private rented sector will remain a vital part of the solution to the UK’s housing crisis. Our Landbay Rental Index (powered by MIAC) shows that rents have been rising consistently on year-on-year basis since January 2013 – up 7% in this time. This coincides with the so-called ‘boom’ in buy-to-let lending – which is actually a recovery given the extent to which buy-to-let dipped during the recession.
Rising rents during a period of significant investment in buy-to-let are a clear sign of the chronic shortage in supply, and incentivising home ownership doesn’t take away from the fact that affordability is a problem for many buyers and will continue to be unless much more ambitious house building plans are introduced. These fundamental dynamics in the private rented sector mean that while amateurs may be deterred by the Government measures, they are highly unlikely to rush for the exit.
So our pint half full view of 2016 is that those lenders with the underwriting capacity to lend to professional investors will be in a position to benefit from the subtle shift away from the amateur landlord in favour of the professional.
Another reason we are optimistic is that this year heralds the new Innovative Finance Isa, which will mean investors using P2P platforms can enjoy tax-free interest from April. P2P lending has been growing at an astonishing rate, reaching £2.7bn in 2015 and Landbay is currently the fastest growing platform in the UK. This trend will only accelerate as one of the barriers for investing is removed. Bringing P2P investments into the fold of such a popular tax wrapper also reinforces just how successful the innovative P2P sector is becoming.
2016 looks like being a year of change and when change is in the air the successful businesses will be the ones that see opportunities rather than threats.
