Buy to let remains a popular investment option for Brits, despite being the subject of major reform over the last three years. Government legislation since 2017 has been increasingly hostile towards buy-to-let owners but could the aftermath of the pandemic prompt a change?
Figures from 2018 show that the Private Rented Sector [PRS] provides homes for over a fifth of the population, that’s more than 4.7m households, making it bigger than the Social Sector and it’s doubled since 2002.
Large institutions are discovering their appetite for what’s called Build To Rent [BTR] – effectively whole developments given over to renting – somewhat later than their European counterparts who, despite a lack of house price inflation in their countries, have realised that long term tenants provide sensible returns for the vast pension sector. Renting is considered quite normal for most in Europe and needs to be normalised here. Discussions on longer tenancies are under way.
The last twenty years have seen an explosion in Buy To Let [BTL] investors, the vast majority owning one or two properties, powering a significant part of PRS growth.
However, the 08/09 Banking crisis focused the Bank of England on borrowings and ensuring there wasn’t another crunch. The result was the Mortgage Market Review in 2014 which tightened lending criteria and stress testing, followed by the announcement in 2015 that private and individual landlords would face a tightening noose of tax increases from April 2017. This was ostensibly to professionalise the industry and rid it of overstretched landlords in a market that represented 15 per cent of all mortgages.
The effect of those gradual changes, coming to fruition in April this year, is that regardless of which tax bracket you’re in – remember your rental income might push you into a higher bracket – there is now no offsetting of mortgage interest against the rent collected, just a 20 per cent tax credit.