BTL mortgage lenders could be hit as the rest of the market gets rosier
In the first quarter of this year there were just 41,149 new buy-to-let loans worth £7.0 billion issued across the nation. Although a substantial figure overall, the figure is down 17.3% by value compared with the same quarter in in 2023 – and things may be about to get a lot worse.
Despite interest rates starting to drop with a BoE cut and a heating up battle for mortgage market share by the country’s home lenders, concerns about a potential increase in capital gains tax in the upcoming October Budget are causing a surge in activity among business owners, property investors, and shareholders, according to wealth managers and tax advisors.
Earlier this week, Sir Keir Starmer hinted that the Labour government might raise taxes to address a £22 billion deficit in the public finances. “There’s a Budget coming in October, and it’s going to be painful,” Starmer stated on Tuesday, adding that those with greater financial means should bear a larger share of the burden. Mortgage lenders’ share prices plummeted earlier this week as news broke.
Advisors have noted growing anxiety among their clients about the possibility of higher capital gains tax rates, especially since Labour had previously ruled out increases to national insurance, income tax, or VAT before the general election in July.
“This is a frenzy,” Tim Stovold, a partner at Moore Kingston Smith told the Financial Times, highlighting a significant rise in inquiries about asset sales driven by fears of impending tax hikes.
Currently, capital gains on assets like businesses, second homes, and shares are taxed at rates ranging from 10% to 28%, which is lower than the 20% to 45% applied to income. Miles Dean, a partner and head of international tax at Andersen, told the FT that his clients with assets in real estate, company shares, and cryptocurrencies had been eager to sell and lock in current tax rates for over a year, anticipating Labour’s rise to power.
Advisors have also noted clients exploring other methods of asset disposal, such as transferring assets into family trusts or gifting them to younger relatives, in response to potential changes in the inheritance tax system.
For some intermediaries’ clients, the latest threats to their income may be the final straw.
Whatever the outcome on the BTL market, at least the rest of the market appears to be seeing some spring shoots – lenders like Lloyds and Halifax softening borrowing requirements , a seasonal dip in home prices and the BoE’s recent rate cut are all contributing to the promise of a busier autumn for mortgage intermediaries.
