Buy-to-Let:

According to Fergus Wilson, who was one of Britain’s biggest buy-to-let landlords, the days when UK small-scale landlords could make outperforming returns from property are numbered.

Britain’s biggest buy-to-let landlord, Fergus Wilson, says future investors will never be able to match the financial success he has enjoyed – and that landlords’ days in this country are numbered.

Fergus Wilson and his wife Judith acquired nearly 1,000 homes in Ashford and Maidstone in Kent, over a 20 year period, but they are now in the process of selling-up to foreign investors.

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Wilson argues, as reported by The Guardian newspaper, that the much tougher lending criteria being introduced by the Bank of England’s regulations on lenders, with larger deposits and considerably higher rental income requirements, will tip the balance from profitable operations using borrowed funds, to a situation where the market is killed off for future buy-to-let investors.

“It will be impossible to achieve in the future what Judith and I achieved. The constraints put on [buy to let] by the government will ensure that. It is keen to ensure there is never a repeat of 2008… it is being cautious, some will argue over-cautious. The days of the small buy-to-let landlord are numbered. Very many landlords are exiting because of restrictive tax conditions due to hit them.”

Council of Mortgage Lenders (CML) economist, Bob Pannell, says that buy-to-let lending may have peaked in 2015 and evidence is gathering to show there will be a marked fall-off in buy-to-let mortgage lending in 2017.

“We are already at or past the peak for buy-to-let lending,” Parnell told The Guardian, “We are currently running at around 6,000 new purchases a month using buy-to-let mortgages, compared with 10,000-11,000 in the corresponding period last year. The combination of a tightening in lending criteria and changes to tax relief are the key drivers.”

Despite the many protests and threatened court action by landlord groups, Chancellor Philip Hammond, a property man himself, has continued along the track set by George Osborne and has even introduced more regulations in the form of the banning of letting agents’ fees, which will pile even more pressure on landlords as these costs will be passed on to them.

CEO of estate agent haart, Paul Smith, told The Guardian that buy-to-let transactions has tumbled 63% this year, due to what he termed “war on landlords”:

“The scale of decline in buy to let in just 12 months is deeply worrying – landlords have clearly pulled out of the market and are unlikely to return any time soon. This is entirely the result of government policy, with Theresa May picking up George Osborne’s baton and proceeding to bash landlords with renewed vigour. The effect has been to more than halve the number of buy-to-let sales in England and Wales, and the inevitable consequence will be fewer properties available to renters next year, and higher rents.”

Stuart Law, CEO of investment advisors Assetz says Buy-to-let lending will fall 20% next year. Law, who has been one of the strongest advocates of property investing thinks:

“Buy-to-let lending will be much lower in 2017 than 2016, perhaps 20% lower. The mortgage interest tax will lead to reduced borrowing in low-yield locations like London, and also lower mortgage loan-to-value levels generally. For landlords in London, selling up is already the reality. Property yields in the city are so low that some find themselves already subsidising their tenants even before all the tax changes come in. Beyond the M25, however, it’s another world.”

However, CML economist Pannell says that only between 30%-40% of small-scale landlords with rented properties in the UK have a buy-to-let mortgage. Owner investors clearly will not be affected by changes to tax relief.

Even those landlords who will face steep tax increases may well decide to see it through as the alternative investments open to them are far worse.

Simon Rubinsohn, Royal Institution of Chartered Surveyors (Rics) economist, told The Guardian:

“Yields have been compressed and returns aren’t as attractive as they were. But when you look at the alternatives, landlords do not find any greater comfort from the idea of putting their money in the banks or on the stock market.”

Rics research has found that most landlords are sanguine and say that the tax changes would make no difference to their future plans, though 40% have said they will probably reduce their property portfolios over five years.

The Rics view is supported by Peter Williams a director of The Intermediary Mortgage Lending Association who says:

“While the changes are significant, residential property remains an attractive investment – rents tend to rise at least in line with inflation. Though a minority of landlords may sell up as a result of the changes, this is unlikely to be as widespread as many believe.”

Others argue that the changes will benefit tenants by reducing demand for first-time buyer properties through buy-to-let decline, and make it easier for “Generation Rent” to buy. But others argue the changes will push-up rents, and with wage rises stagnant, make it harder for today’s renters to save for a deposit. This prospect brings calls for event more stringent eviction controls in private housing and a greater emphasis on social housing provision from some quarters.

Read the full Guardian article here

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