With the buy-to-let market poised for exception growth in the coming year and with fresh changes looming for buy-to-let mortgage rules, The Times recently examined the potential repercussions of an expected hawkish move by the Bank of England later this week.
Most significantly, the publication noted that industry insiders are indeed predicting some form of tightening of mortgage regulation to be announced with George Osborne’s Autumn Statement, due tomorrow.
“We are expecting some tightening of mortgage regulation, with the Bank of England looking closely at this following the high volume of lending to landlords,” said Lucian Cook, of real estate agency Savills.
The UK government has already laid out plans to lower tax relief for landlords based on mortgage rates, while a further “wear and tear” tax break is also to be scrapped.
In a consultation document, HMRC said that this “removes any opportunity to claim the cost of larger items used for the purpose of the property rental business, for example, cars”.
However, Cook noted that the changes are unlikely to lead to an exodus from the market, at least for as long as houses appreciate as much as they have in recent months. Savills has forecast that rental growth will average about 3 percent for the next few years, reaching a cumulative 16.5 percent by 2020.
“The traditional rental demographic of sharers and young professionals is set to continue growing as the cost of buying limits the number who are able to make the move into home ownership,” Cook said. “These groups are likely to benefit most from the forecast wage recovery and this will drive the majority of rental growth in coming years.”
Indeed, home prices across the UK have surged in recent months and are set to score a 10 percent annual rise for 2015. Since the market’s low in 2007, house prices in London have risen 44.4 percent, while the average city house in the UK is 21.1 percent more expensive as compared with 2007 levels.
The climb has been so steep that many first-time buyers have been left struggling to compete for property, and resorting to renting out a home instead of buying.
Savills’ Cook noted that “in some high demand, low supply markets, we may see people living in larger household groups, which would put a dampener on [buy-to-let] increases”.