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Outlook for the buy-to-let sector

A raft of changes over the past year, including steeper stamp duty, have proved challenging for many buy-to-let landlords.

The 3% stamp duty surcharge on second homes, including buy-to-let properties, was announced as part of the Autumn Statement in November 2015, and came into force in April 2016. This saw many landlords rushing to purchase buy-to-let properties before the surcharge was introduced, boosting the housing supply for tenants.

This increased supply, combined with stretched tenant incomes, suppressed rental inflation in 2017, with rents rising by just 0.7% - the lowest rate of increase since 2014 according to Rightmove data. T

According to a report on buy-to-let by savings experts, Kent Reliance, rents are generally rising much faster outside the capital now that the affordability ceiling has been reached there. Rents in many other areas are likely to continue to climb throughout the year, particularly as landlords seek to counter the effect of higher running costs.

Buy-to-let owners not only face higher stamp duty bills, but have also had to contend with changes to mortgage interest tax relief. The relief is gradually being reduced over the next few years, so that by 2020 it will only be possible to reclaim tax relief at the basic rate of 20% for all tax-paying landlords, which means many higher and additional rate taxpayers will face steeper tax bills.

Spring spike in remortgages expected
The surge in buy-to-let property purchases in the run up to the 2016 stamp duty changes means that many landlords who took out two-year fixed rate deals back then will be looking to remortgage this spring. Therefore, there may well be a spike in buy-to-let remortgage activity as landlords seek to avoid moving onto more expensive standard variable rates.

All landlords should check when their existing mortgage deals are due to end as taking advantage of current buy-to-let mortgage deals can help keep outgoings to a minimum. November 2017’s base rate rise is likely to see continued demand for fixed rate deals, as landlords look to protect themselves from potentially higher mortgage costs in the future.

Outlook for the buy-to-let sector
The changing environment for landlords has dampened enthusiasm for the buy-to-let sector. Latest figures from trade body UK Finance, which represents the finance and banking industry, show that 6,600 new buy-to-let mortgages were taken out in November last year, 1.5% fewer than in the same month the year before. Buy-to-let remortgage numbers were also down, with 13,500 new remortgages in the month, 3.6% less than in November 2016.

The Kent Reliance report further stated that amateur landlords are leaving the market as the private rental sector is becoming more professional and business-like, and warned that there is “a limit to the amount of interference” the sector can absorb before there is an even greater reduction in the supply of rental properties.

Learn more about how we can help with your rental property requirements, or contact our specialist Lettings team today on 03302 211 222

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