Tax changes for landlords hits UK housing market buy to let activity

The UK housing market saw a drop in buy to let activity in April with the new cut to mortgage tax relief for landlords being blamed for the decline.

It means that the proportion of buy to let valuations is 6% below the five year average for April and is even lower than it was in April last year when an extra 3% stamp duty surcharge was introduced, according to the latest data from Connells Survey and Valuation.

It says that the decline in buy to let valuations has likely been driven by the stamp duty surcharge and the cut to buy to let mortgage tax relief. As of April, landlords can only offset 75% of mortgage interest payments against rental income, down from 100% in March and the amount will continue to fall in the next few years.

According to John Bagshaw, corporate services director of Connells Survey & Valuation, Government policies have been hitting smaller landlords and over the last year buy to let valuations have made up less than 10% of market activity, representing a new low in April.

‘This could suggest that smaller, private landlords, who typically use buy to let mortgages, have not been investing on the same scale as previously seen. Buy to let used to be seen as a viable way to gain additional income or to fund retirements,’ he explained.

However, while buy to let valuations have declined as a proportion of market activity, buy to let remortgaging is 4% higher than the five year average for April, and Bagshaw reckons it means that landlords are looking to refinance.

Buy to let remortgaging is now responsible for 11% of total valuations in the market, a greater proportion of valuations than buy to let purchasing and Bagshaw said that landlords have been taking advantage of lower remortgage rates to offset some of their rising tax costs.

The data also shows that first time buyer valuations rebounded to 34% of market activity, up from 32% in March.

‘First time buyer activity has sustained the market, as buy to let borrowing has declined. It’s encouraging to see first time buyer valuations pick up again. First time buyers have been responsible for more than 30% of valuation activity for over 12 months, as more aspiring home owners get their first foot on the ladder,’ Bagshaw explained.

‘It remains incredibly difficult to save for a deposit, but the lower cost of borrowing, combined with less competition from landlords, has meant more first time buyers have been able to purchase a home,’ he added.