Buy to let activity in the UK increased by 12.7% in August as the sector successfully absorbed the Government’s 2015 policy changes and enjoyed a post Brexit bounce, according to new research.
Changes to the tax treatment of the buy to let sector looked to be choking off activity in 2015 and early 2016, says the latest report from Connells Survey and Valuation.
Although the restriction of tax relief on mortgage finance costs to basic rate tax only, the removal of the 10% wear and tear allowance, and the introduction of additional 3% stamp duty surcharge hit the sector following the 2015 budget and the last Autumn statement, but the report explains that the August rebound suggests the Government’s changes are set to have been a short term problem for the sector.
‘Now the effects of the Government’s legislation have been digested by lenders and investors alike, buy-to-let activity has increased sharply. The market’s fears over the impact of Brexit are calming, too and the Bank of England’s decision to cut the base rate last month for the first time in seven years may also have a psychological impact on property investors,’ said John Bagshaw, corporate services director of Connells Survey & Valuation.
‘Encouraging economic data, high levels of employment and fading fears of a recession have also injected life into the sector. While we can still see the impact of last Government’s damaging set of changes to legislation in the year on year numbers, August’s surge in activity highlights the resilience of the buy to let sector,’ he added.
The report points out that the rebound in buy to let investment reflects developments in the wider economy where an immediate and detrimental impact on consumer confidence post Brexit has not materialised as predicted.
Indeed, the UK’s services sector saw a record rise in August with the purchasing managers’ index showing activity in UK services recorded the biggest month on month rise in the survey’s history. UK retail sales figures rose in July while consumer confidence rose in August.
The data also shows that first time buyer activity has seen the strongest overall increase in valuations and has driven August’s housing market, with valuations up by 6.8% on July and by 19.6% on an annual basis.
Remortgaging activity has also seen an increase in valuations on both a monthly and an annual basis. On a monthly basis, remortgaging valuations saw a growth of 4.2% and a 1.5% increase year on year to August 2016.
‘First time buyers have enjoyed a month of growth and the sector is continuing to thrive following a strong July and given first time buyers are the engine of the property market, this is very significant. August has also seen a surge in activity in the remortgaging sector, partially fueled by the interest rate,’ he explained.
Those further up the property ladder looking to sell their home felt an increase in activity by 2.6% compared to July and across all sections of the housing market, overall valuation activity has risen by 5.1% on a monthly basis, between July and August. On an annual basis, there was also a slight increase of 0.2% more valuations carried out than in August 2015.
‘Overall market activity remains steady and fears of a post-Brexit slump has failed to emerge. In the first full month after the Bank of England’s decision to cut interest rates, the buy to let market has seen a surge in activity. Powered by low interest rates, landlords have taken the opportunity to remortgage,’ Bagshaw concluded.
