We are in danger here of throwing the baby out with the bath water and the housing crisis that we are seeking to avert could actually be made much worse because of these measures.
Bob Hunt is chief executive of Paradigm Mortgage Services
With the increase in stamp duty on additional property consultation having recently closed, many within the industry have been issuing their responses and having their say on the potential impact these changes (plus those to mortgage interest tax relief) will have.
I think it’s fair to say there are few industry players who support such action; indeed the potential for some very considerable and negative unintended consequences appear to be high. We must therefore consider that in an attempt to ‘level the playing field’ between landlord and first-time buyer the government could do more harm than good.
Consider this statistic taken from Savills’ ‘Rental Britain’ report which looks at the future for the private rental sector in the country. It suggests there will be significant demand for rental accommodation over the next five years – indeed it says such demand will grow by 1.1 million households, and that’s with the government somehow meeting its affordable homebuilding targets.
Much has been said over the past decade about the importance of the private rental sector in helping bridge the ‘housing gap’ however with this type of increase in demand, would the PRS be able to meet it even if these curtailing measures were not being introduced? Perhaps not, but it would certainly do all it could, plus it would continue to be an attractive investment opportunity for individuals. The worry must be however that with the stamp duty changes that are effective in less than eight weeks, and the cut to tax relief from next year, we may be worsening the position where the supply of rental property is falling back at a time of rising demand.
Ordinarily of course this increased demand for rental accommodation would be music to the ears of landlords, however given what might be coming over the horizon, and one suspects there will be some legal hoops to be jumped through first, it may not be viewed so positively. Confidence amongst landlords has dropped, according to the National Landlords’ Association, and it says 20% (up from 7%) are considering off-loading some properties within their portfolios. Whether they go through with this is another matter but these measures are certainly making existing landlords consider their position, and perhaps putting off prospective landlord participants from taking the plunge.
In a very general sense, the government and regulators might already argue that their policies are working in that the brakes are being applied to the buy-to-let sector and the natural beneficiaries of such an approach would be first-timers. However, this is far too simplistic aview – firstly, not all renters want to buy; secondly, not all renters have the means to buy; thirdly, will the properties sold by existing landlords be the types of properties that appeal to first-timers; fourthly, most landlords have a very long-term horizon when it comes to buy-to-let activity and will not be wanting to sell their quality properties; finally, we come back to the original point about demand for rental accommodation growing – landlords with a long-term view of the market may actually be unperturbed by the changes, certainly not the stamp duty increases, and look to (at the least) continue their involvement albeit not actually adding to their portfolios.
At the moment one is presented with something of a contradictory approach – in effect one part of the market, buy-to-let, is being blamed for the inability of another, first-time buyers, to function properly.
But, the UK housing market has changed considerably in recent times, and this I fear given the blunt instruments being used to purportedly solve the problem, is where in my view there really hasn’t been enough intelligent thought. The growing demand for rental accommodation, the lack of new housing supply, the increase in house prices, and the ability to secure mortgage finance, all make a buy-to-let versus first-time buyer approach a very crude one indeed. The government, Treasury, and Bank of England should be looking to adopt a stance which supports all parts of the housing market, not attempt to destroy one in order to deliver an artificial boost which is unlikely to last or truly deliver. We are in danger here of throwing the baby out with the bath water and the housing crisis that we are seeking to avert could actually be made much worse because of these measures.
