The Buy-to-let market
Posted: 23rd March 2016
The buy-to-let market has been in the news recently due to the impact that it has had on the chronic housing shortage in the UK. This has prompted the government to take action, initially by curbing the tax benefits usually associated with buy-to-let ownership, and subsequently increasing the stamp duty that landlords are required to pay upon purchase.
While this has caused huge controversy and has been cited as an all-out attack on a key economic engine, many believe the attack is necessary and long overdue. In fact, some financial commentators have even gone as far to say that the growth in the buy-to-let market has and will continue to pose a major risk to economic stability in the UK, both in the short and longer-term. While the government has clearly decided that the recent growth of the buy-to-let market remains a primary reason why there are such a shortage of houses available for sale, others have identified the influence that this sector has on property values. Many consider that the huge and disproportionate surge in property prices that has taken place over the last 18 months has been largely influenced by buy-to-let landlords, whose drive to bulk-buy real estate has enabled vendors to target a captive market.
This has sent price growth spiralling at a much faster rate than earnings, forcing some into the rental market and others to assume a mortgage that they can ill-afford.
We must also consider the impact of the governments’ changes to tax and stamp duty legislation, as this has already increased the number of houses sold to direct cash buyers such as Property Rescue. The drive to sell buy-to-let homes en-masse could have a cataclysmic impact on the market as a whole, sending prices plummeting and forcing millions of home-owners in Britain to lose value in their properties. This would also see many become encumbered by negative equity, triggering a spiral of decline similar to that which proceeded the great recession in 2008.
Of course, this represents the case scenario that may or may not unfold over time. What it does underline is how sensitive property price points are to the prevailing trends in the buy-to-let sector, which in turn proves that the UK’s economic and financial security is placed at risk by sudden shifts in value. This cannot be ignored, and the government must manage this as it aims to regulate buy-to-let growth and create a larger number of listed properties for sale.
This is a long-term plan, and there may well be some considerable issues until the government's initiatives begin to bear fruit. In this respect, both home-owners and tenants must remain patient and strive to stay afloat until the economic climate begins to settle and the buy-to-let market retains a sense of balance.
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