In 2018, a report from the Intermediary Mortgage Lenders Association (IMLA) recorded that buy to let investment had slumped by 80% since 2015.
The main cause of this, according to the report, has been tax changes, that have acted as a deterrent to landlords.
Early in 2019, UK Finance data showed that buy to let mortgage activity had continued to slow, with figures for buy to let investor landlords taking out mortgages down 5.6% on the previous year.
Government tax and regulatory measures have included a 3% surcharge on stamp duty and removing mortgage interest tax relief.
Over 20% of landlords have now said they plan to reduce the size of their portfolios
The costs are starting to outweigh the benefits, with the result that landlords are either trimming down their portfolios, or exiting altogether.
The IMLA report says that the private rented sector has benefitted in the past from buy to let, with landlords in this sector investing some £289 million between 2000 and 2017.
The argument is that this activity has been meeting a rising tenant demand, bringing 1.8 million properties onto the rental market.
The report also suggests that at the same time real rents across the UK have fallen by 4.4%.
The Consequences of Policy Layering
Policy layering is the cumulative effect of the Government’s tax and regulatory changes.
With around 4.5 million in the UK relying on the private rental market for accommodation, landlords cutting back or dropping out could lead to a shortage of rental properties and therefore an upwards pressure on rents.
This is against a background of a declining availability of social housing.
Government interventions targeting buy to let landlords have been about trying to encourage more first time buyers onto the market, but the risk is that there is now an imbalance in the market
Are investors in the private rented sector providing an essential service, and therefore should the Government be looking at supporting rather than punishing this sector?
The Return of the Homeowner
UK Finance reports that there are now more first time buyers in the UK, recording an annual increase of just over 8% in July 2018.
While the attraction of buy to let continues to fade, first-time buyers are now taking the place of landlords, however, the housing market overall is still very fragile and price-sensitive.
With an uncertain year ahead, neither buy to let landlords nor first-time buyers are in for a predictable or smooth ride.