More doom and gloom in the buy-to-let market

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The prediction of crisis within the buy-to-let market appears to be coming to fruition – we have seen the release of figures showing a 40% jump in the number of private landlords’ properties being repossessed by lenders in the third quarter of 2019.

In April 2019 we reported on the English Housing Survey (Government publishes the English Housing Survey) which predicted “rough times ahead for the buy-to-let market”. The latest figures released by UK Finance reveal that the number of private landlords’ properties being repossessed saw a 40% year-on-year increase during the third quarter of 2019. According to the data, there were 800 such repossessions of buy-to-let mortgaged properties between July and September 2019, up from 570 in the corresponding quarter in 2018. There were also 4,550 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the third quarter, up 5% year-on-year.

David Smith, of the Residential Landlords Association, made the following comment on the figures: “Repossessions for mortgage arrears take place for many different reasons. Mortgage interest relief changes, which are now almost fully implemented, the increasing cost of regulation and the ever increasing time to repossess a property are all major factors. Since most repossessions of this kind lead to tenants being evicted it is vital that the next government actively supports the majority of landlords doing a good job to provide the homes to rent the country needs. If we want to develop long-term tenancy models we need also to support landlords to stay in the market long term.

The increase in landlords losing their properties has happened despite continued low mortgage rates generally. Meera Chindooroy, policy and public affairs manager for the National Landlords Association also points to the recent reduction in income tax relief, together with a 3 % surcharge on stamp duty and the growing cost of meeting tighter regulations, as the culprits.

Section 24 of the Finance Act 2015 (also known as the ‘Tenant Tax’) (see our article Landlords begin to feel the effect of higher income tax bills) began to take effect in April 2017 and has continued to be phased in over the past four years. Mortgage, loan and overdraft interest costs are no longer taken into account when calculating taxable rental income, resulting in many landlords paying more tax on their property income.

Ms Chindooroy goes on to say: “The next government should begin to prepare for a mass exodus of landlords from the private rented sector in the coming years, as the impact of fiscal policies are realised and with all the major parties committed to further reform of the sector, while providing landlords with little – if anything – to boost their business confidence.”

WM comment

The buy-to-let market faces a real crisis in 2020. The knock-on effect is likely to be the rise in the appointment of Receivers by lenders to enable effective realisation of securities. The number of such appointments will be a good barometer of the existence and extent of a failing market. It is important that lenders think strategically about what may well lie ahead and gear up accordingly, both internally and also externally with regard to their associated advisors.