Over the course of the last 18 months, the buy-to-let market in the UK has continued to enjoy huge growth and a considerable surge in popularity. This applies to prime locations in the capital and regions further afield too, as property prices have continued to grow at an exponential and disproportionate rate nationwide.
This trend may be set to reverse, however, despite the fact that gross lending in the buy-to-let market peaked at £27.4 billion in 2014 and continued to grow steadily throughout last year. With stamp duty increases having already taken hold in the market and more changes scheduled for the next financial year, there is a belief that real estate will soon cease to be the viable investment opportunity that it is today.
How did the Buy-to-let Market come to Prominence?
The popularisation of buy-to-let mortgages towards the end of 2014 came as the result of a perfect storm in the British property sector. With the construction industry failing to keep pace with the rising demand for new homes, the supply of available housing diminished and this created a huge imbalance in the market. Vendors were therefore able to place a premium on their properties, hiking price points to optimise the real-time value in their homes.
The result of this was that prices began to rise at a disproportionate rate to earnings, and this is a trend that is only just beginning to reverse. This meant that a growing proportion of aspiring buyers were forced to enter the rental market instead, triggering a rising demand for private tenancies and lease agreements. With this the market turned full circle, as investors flocked to the property sector to capitalise on a growing customer base.
What has changed in the market?
Such an imbalance is hardly conducive to long-term growth, so public and private sector authorities have combined to restore the status quo in the property market. We have seen the sale of public land and an increase in the number of affordable housing projects, for example, with a view to increasing the supply of properties and lowering prices. This has been followed by new regulatory measures in the buy-to-let market, which will become increasingly apparent to investors over the course of the next year.
This 3% stamp duty surcharge was introduced on 1st April 2016, and it applies to anyone who is purchasing a second home. This is a relatively big increase, and one that is expected to dampen the enthusiasm of buy-to-let investors over time. While the introduction of this measure ironically caused a rush of purchases in March as investors looked to beat the April threshold, it is likely that the market will see a slight decline in activity over the next few months.
The Future for the Buy-to-let Market: Will it remain a viable investment into 2017?
Given this and the fact that numerous tax advantages associated with buy-to-let mortgages are set to be abolished next April, it appears as though these controversial measures will eventually achieve their aim of restoring balance to the market as a whole. They will certainly diminish the appeal of buy-to-let investment to some degree, particularly at entry-level where the margins on low value homes will be squeezed.
Individual objectives such as building new homes will not be achieved over night, however, while the increase in stamp duty and abolishment of tax relief will be less impactful at the higher end of the market. When you also consider how international firms such as Withers Worldwide are able to coordinate international investments while optimising tax efficiency, it is clear that the buy-to-let market will remain a lucrative entity at least for those with considerable financial resources.
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