buy-to-let market
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The buy-to-let market is in better shape than many might think, a lender has said.

John Goodall, chief executive of specialist buy-to-let lender Landbay, said recent industry commentary that states the market is on a downturn and that regulatory changes are forcing landlords to sell up was “a little overdone”.

Last week research from Arla Propertymark showed there had been a 25 per cent increase in the number of landlords selling up their property and those at the coalface said regulatory changes and a reduction in tax relief had stopped many viewing the buy-to-let market as a profit maker.

But Mr Goodall disagrees. Speaking to FTAdviser, he said: “There’s always been a churn in the market. Of course there are some people selling up property and getting out the market but that’s always been the case.

“At the moment, the highlight is on those selling rather than those buying. But those buying do still exist. Some small buy-to-let investors are getting out but it’s still only a small fraction.”

Mr Goodall cited UK Finance figures which showed that, in terms of outstanding stock, the buy-to-let market grew from £237bn to £243.9bn over the course of 2018 — an equivalent of 2.7 per cent.

Landlords have been subject to a number of regulatory changes in recent years, with the introduction of an additional 3 per cent stamp duty surcharge on second homes in April 2016, which was closely followed by cuts to mortgage interest tax relief.

Buy-to-let borrowers are also now subject to more stringent affordability testing under the Prudential Regulation Authority’s tightened underwriting rules.

Mr Goodall said the changes are more likely to scare off smaller landlords with only a few properties, which would eventually lead to a more professional industry.

he said: “Small investors that hold property in their own name have seen the biggest changes in terms of tax and stricter regulations are likely to affect smaller landlords more.

“But this has raised standards in the market and means most portfolio owners now act like a small, formal business.

“For example, of course it’s a good thing that houses of multiple occupancy have stricter licensing rules but this could turn off smaller landlords.”

According to Mr Goodall, more business-like landlords entering the market was a good thing would eventually help tenants.

He added: “I think it’s far better for the tenants to think their landlord is committed to it and that they are not just in it for the short term.

“If someone’s doing it on the side and alongside a full time job, the service is going to be worse for the tenant and the tenant does not have as much security.”

Observers in the industry have commented that a reduction in landlords could increase the price of renting and hurt consumers.

Mr Goodall refutes this, saying the market was self-regulating and “if rents go up, that entices more landlords, so more competition and the market would work itself out”.

He also pointed out that the buy-to-let market does not represent the entire private rental sector — as many who buy property can do so without a mortgage or some may inherit property.

The UK’s stagnant housing market — annual house price growth remaining under 1 per cent and home-mover rates on the decline — is often put down to political uncertainty and consumers holding back on decisions until after Brexit.

Mr Goodall agreed with this analysis and suggested uncertainty was more likely to be the cause of any dip in the buy-to-let market.

He said: “Brexit uncertainty is a more pressing issue. People will not invest at the moment.

“Landlords should be getting into it with a five to 10 year plan, but people don’t want to make those kind of big changes with Brexit on the horizon. There’s a little bit of sitting on the sidelines.”

Rachel Lummis, adviser at XpressMortgages, also said she had yet to see any evidence of a sell off of buy-to-let stock from their landlords.

She said: “We are seeing more landlords purchase via a limited company now rather than in their personal names which is resulting in landlords with portfolios with a mix of ownership in their private name and ltd company.”

Ms Lummis added that the type of property landlords liked — typically a two bed flat — had shifted to more high yielding properties such as HMOs and student accommodation, while many were also looking further afield, out of London and Surrey..

By Imogen Tew

Source: FT Adviser

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