During the past year, we’ve also seen a four-fold increase in full mortgage applications. Overall, activity has risen considerably since the UK went into its first coronavirus pandemic lockdown on 23 March 2020.
Endurance of buy-to-let
In 2015 the announcement of a new, additional, 3% stamp duty rate for anyone buying a second home led to gloomy forecasts for the BTL industry.
There were similar predictions two years later, in 2017 when the government stopped landlords from deducting the interest they paid on mortgages before paying tax.
The old system effectively provided higher-rate taxpayers with 40% relief on their BTL mortgage payments. Its replacement meant landlords instead received a flat-rate tax credit based on 20% of their mortgage interest.
During the pandemic, some industry voices predicted that emergency legislation temporarily banning evictions and introducing rent holidays would result in private landlords exiting the sector.
Some commentators are now warning that the government’s proposal to introduce an Energy Performance Certificate (EPC) ‘C’ rating by 2025 on all new properties will lead to an exodus. Despite these concerns, people continue to apply for mortgages for BTL properties.
Small to larger portfolios
The high demand we’re seeing very much reflects trends in the private rental sector.
Some landlords, particularly those with a modest number of properties are selling up. However, ‘professional’ investors, typically those with larger portfolios who have set up limited companies, are buying a stake in the market.
Reasons for the shift are complex but include people choosing to invest in rental property to support lifestyle changes such as part-time working or perhaps leaving the workforce altogether.
These new landlords are no doubt also aware of the increases in capital appreciation in the property market, including in rental properties, during recent years. They are also probably conscious that tenant demand for the UK’s five million private rental properties remains high.
Out with the old
Some landlords are considering disposing of older properties that do not meet the government’s new EPC requirements, but at the same time, some are investing in more modern properties that meet the new criteria.
There also appears to be a geographical shift in the locations where landlords are buying, with many looking outside of London to the regions. Recent data have shown that around 20% of all Zephyr deals relate to property in the North West and Yorkshire.
All the signs so far during 2022 underline that, despite the increasing complexity of owning BTL property, bricks and mortar remain an attractive and popular investment.
