Buy to Let Will Bounce Back in Five Years, Predicts Bank

Buy to let will continue to suffer from a tax crackdown before bouncing back to growth, argues a new economic report. 

The ‘dampening’ of the market forecast by Shawbrook Bank coincides with the phasing in of more cuts to mortgage interest relief that will end in 2020-21. 

Economists who researched the impact of reducing tax breaks and other restraints on the market, such as tightening up the availability of mortgages, predict buy to let will stabilise after 2021 and then move back into growth by 2023. 

The bank has seen an increasing drop in buy-to-let mortgage approvals since 2013, which rose to 27% in 2017 as a readjustment to new tax and financial regulations gripping the market. 

The Centre for Economics and Business Research study reckons the sector has lost 360,000 properties that would have been purchased without harsher tax and mortgage regulations. Still, a core of professional landlords will maintain a strong mortgage demand in future years. 

Karen Bennett, ‎the bank’s managing director for commercial mortgages, said: 

“While the series of government and regulatory changes have had a significant impact on the sector, we have seen the impact felt more heavily amongst the “amateur” landlord community which has presented growth opportunities for professional investors. 

"Recent political turbulence has had an amplifying effect on investor confidence but positively, the market remains buoyant for those with a long-term strategy who draw upon specialist advice to fully understand the impact of these policy shifts. 

"Regulatory change that supports the public interest is not something to be afraid of, and we predict that this high performing asset class will remain a fundamental strength over the long-term provided lenders continue to adapt and change alongside it.” 

Mortgage interest tax relief rules scrapped landlords claiming finance interest as a business expense at their marginal rate and replaced the relief with a flat-rate 20% deduction against profits phased in between 2017 and 2021.

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Investing in a private rented property can be achieved in a variety of ways. Sometimes landlords inherit a property that they then turn over to renting. Sometimes owners of properties become unintentional landlords because they are unable or unwilling to sell a property at the value the market currently dictates.