When the Chancellor announced at the end of last year that he would introduce tax hikes on buy-to-let, many called it the death knell for property investment.
George Osborne said he would add 3 per cent extra in stamp duty on buy-to-let and second homes from April. This was on the back of previously announced reductions in the tax relief available to landlords. The outlook certainly looked bleak for those investing their hard earned cash into rental properties.
The Chancellor’s aim was to ensure that buy-to-let investors did not squeeze out families who were unable to afford to buy a home. And yet evidence has emerged that exactly the opposite has occurred in the months between when the changes were announced and when they take effect.
Latest figures suggest a growth in buy-to-let mortgage approvals has pushed home lending to its highest level in nine years. January saw an increase of 20.6 per cent in house purchase approvals compared to the previous month, to 85,432 from 70,837, according to the data from chartered surveyors e.surv. It is the highest number of monthly house purchase approvals since the 87,594 recorded almost nine years ago in October 2007.
Richard Sexton, director of e.surv, said: “Concerns about the sector’s growth have sparked a wave of legislation but as stamp duty changes come into effect this April, there’s been a rush to get buy-to-let loans approved. Many have predicted a narrowing of the buy-to-let sector but actually what we’re seeing appears to be the opposite.”
A similar story is portrayed by the Royal Institution of Chartered Surveyors. It highlights a “rush to acquire buy-to-let property” before the April deadline, which is helping to push up prices. A total of 49 per cent of estate agents reported an increase in property prices in January, it said.
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Time is running out for buyers to push through their property purchase before the April deadline (unless they are buying at auction) and the data for recent weeks has yet to be released. But RICS said 74 per cent of estate agents still expect to see a further increase in buy-to-let purchases. How landlords react once the tax changes are introduced in April remains to be seen, although it is widely predicted that tenants will see their rents increase to compensate for the extra costs that landlords will soon carry.
As RICS’ chief economist Simon Rubinsohn points out: “There are concerns that some existing landlords will look to either gradually scale back on their portfolios or exit the market altogether as the more penal regime begins to bite. Against this backdrop, it is perhaps not surprising that the key RICS indicators point to further rent increases.”
RICS found that generally, estate agents expect rents across the country to increase during the next 12 months and the coming five years. But far from the predicted killing off of the sector where investors shun buy-to-let altogether, this latest data suggests there remains a healthy appetite for investing in property.
Are you surprised by the continued surge in buy-to-let? Let us know in the comments below.