Landlords will take attempts to limit BTL investment in their stride

Originally published by Mortgage Solutions

The future of the buy-to-let (BTL) market is always in the spotlight, not least after the government shone further light on it at the Budget in the form of one new tax increase measure and a decision not to introduce another much-speculated-upon potential tax increase.

That said, the government’s decision not to increase capital gains tax (CGT) on the sale of investment properties held by individuals but to increase the stamp duty surcharge to 5% with immediate effect perhaps tells you all you need to know about what the new administration would like to see happen. 

Clearly, making it more costly to buy and not taxing individuals more to sell might point some landlords in the direction of the exit. However, as we know, with a community that is much more limited company/portfolio-focused, that need to exit is not so pressing. 

Plus, those who are in this for the long haul might also recognise an opportunity to be secured if others are willing to sell up. It comes in the form of a much better chance of purchasing property – first-timers tend not to want to buy former rental properties – and, in the years ahead, to benefit from both income and capital growth. Even with a stamp duty increase.  

Landlords are in it for the long haul 

The reason is that it’s somewhat naïve to think that landlords are only thinking about upfront costs when it comes to adding to portfolios. Of course, an increase in the stamp duty surcharge is not going to be welcomed, but it’s still a fixed cost of buying, and landlords might even be able to negotiate on the property price to bring that stamp duty down a little. 

However, what will also be factored in are rents and mortgage costs, and if supply of properties isn’t going to move in an upward direction, and demand from tenants is going to also stay strong, then we’re naturally going to see increases in rents. 

At the same time, while the short-term outlook for mortgage pricing is likely to be pretty similar to what we’ve seen over most of 2024, the medium- to longer-term forecast is for falling rates and, married up with rising rents, will give landlords who can make the numbers work a stronger yield. 

Homeownership may not get more affordable 

On top of this, of course, we need to look at capital values for property.  

Even with the government’s desire to build one-and-a-half million new properties in the next five years – the pessimists among us will a) be aware that this is a difficult ask, and b) recognise this number may still not be enough to house the massively increased population that exists and the ongoing demand for owner-occupation. 

The huge supply requirement in order to meaningfully shift the dial on house prices – in my view – is not going to be forthcoming, even if the government does hit its target. This leaves property prices on an upward trajectory – the Office for Budget Responsibility (OBR) at the Budget suggested the market would see a 15% increase in house prices by 2030, which feels a little conservative and is down against what others in the market are projecting.   

That increase in capital values is, of course, going to be a huge consideration for landlords when they are looking to buy property, and given we are likely to see some significant increases in many parts of the country, we should expect landlords to act accordingly. 

Landlords will continue to make their investments work 

Now, no one is denying that landlords are facing an increase in costs, via stamp duty, in order to purchase new properties, but in the grand scheme of things, it might not be the biggest hurdle they have to overcome.  

Those larger hurdles have been affordability and securing the deposit levels required, and if the market is now about 90% existing landlords, then they may well have the necessary equity in their existing portfolios via remortgaging to be able to make purchases happen, which can cover these increased costs.  

Landlords are still in the political crosshairs, but this has been the case for many years. Politically, this is an attempt to encourage a few more to sell up, but that will only present a more beneficial environment and opportunity for those that can stay and those that can continue to hold and invest.   

Cutting their cloth accordingly has been a necessary approach for all landlords over the last decade.  

This will not change that, and I believe advisers are still going to be very much in demand from their BTL clients, not least because of your ability to make a discernible, and tangible, difference to their bottom line and to ensure they are able to keep their properties to benefit from the rent and capital rises that seem to be much more likely now.