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Buy-to-let: saint or sinner?

Craig McKinlay (pictured) is new business director at Kensington Mortgages

You only need to type ‘buy-to-let’ and see that one of the first news articles online is questioning whether the market is ‘dead.’

‘Decline’, ‘is it worth it?’ or ‘doom and gloom’ are other phrases that probably spring to mind. While there’s no denying buy-to-let (BTL) has had its fair share of bumps, it isn’t doing as badly, at all, as it has been made out to .

Last week, UK Finance figures showed that, apart from one anomaly in June, BTL purchases had risen every month for the past seven months.

In August this year, BTL activity was up by 23% compared to February. And that’s just this year alone.

Additionally, the number of BTL products hit a record 12-year high in October – beating the previous record in 2015 – according to Moneyfacts.

Figures like these show the market is adjusting and moving back to where it once was before the string of regulatory changes. It hasn’t taken five steps back.

Horror stories have been completely oversold.

While many sensational headlines have implied a significant drop, in reality, since 2016, gross BTL mortgage lending has decreased by approximately 7%, according to UK Finance figures.

At Kensington Mortgages, our BTL business has more than doubled, increasing by 243% in the latest financial year.

The ‘horror’ that lies beneath

Looking underneath gross total lending, there’s no denying there’s been a decline in standard purchase activity, which is what most headlines focus on.

This is in part due to the layering of regulatory changes and, consequently, ‘dinner party’ landlords exiting the market.

However, with change comes opportunity. More experienced and professional landlords have stayed and upped their game, looking to expand their portfolios.

For example, we have seen a significant increase in limited company landlords and HMOs, as they search for higher yields and good growth at higher LTVs.

Keep out

The market has become more complicated. Landlords have dealt with several changes over the last few years.

Changes to the wear and tear allowance, the introduction of an additional 3% stamp duty surcharge on second homes, and cuts to mortgage interest tax relief are still all being absorbed by the market.

Government intervention has ultimately been driven by two things. Firstly, it was an initial attack on so-called “money grabbing” landlords.

Secondly, and most importantly, it was a misconception on the correlation between first-time buyers and landlords.

By penalising BTL, the aim was to free up properties for first-time buyers. Therefore, what you would then expect to see is a negative correlation. But in fact, both were rising in parallel before the regulatory and tax changes.

In August this year, first-time buyers reached the highest level since before the financial crisis, according to UK Finance.

Additionally, according to IMLA, professional landlords, with five or more properties, now represent 48% of the housing stock, up from 38% nine years ago. A clear harmony can exist between the two.

Despite this all, the BTL market has been resilient. It’s now up to the government to leave the market untouched so we can understand the full impact.

Ultimately, the BTL market will always remain strong. There will always be demand for rental accommodation.

Rising house prices, combined with the amount of years it takes to save for a deposit, means younger generations are renting for longer, or are doing so out of choice because of the flexibility it offers compared to buying.

What we now need is the government to fully understand its importance as a vital sector of our housing market and support it – not hinder it.

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