The number of landlords in the UK rose to reach 1.75 million in 2013-2014, up 7 percent from 2012-2013 which was 1.63 million.

The figures released by estate agent ludlowthompson from analysis of Her Majesty’s Revenue and Customs records also revealed that net income for landlords increased from £13.1 billion to £14.2 billion in the same period.

Figures from the Council of Mortgage Lenders show that the total rent collected by private landlords hit a record £53 billion to the year in April 2015, which is about a 10 percent year on year increase.

These figures are expected to have risen significantly since then, especially following the rush by investors to purchase buy-to-rent property prior to the April 1 implementation of the extra stamp duty surcharge.

The rush saw also saw a sharp rise in mortgage lending to buy-to-rent purchasers this year. According to the Council of Mortgage Lenders, mortgage lending to property purchasers increased 226.1 percent in March.

Similarly, HM Revenue and Customs figures for March 2016 showed that 161,900 properties were sold in the UK, the highest for a single month, since June 2006.

The increased investment also saw the government collect about £1.2 billion in tax from property transactions alone.

Board supplier Agency Express reported a 12 percent increase in new property for rent listings in March, while the number of properties let increased by 9 percent in the same period.

However, the number of UK landlords is expected to reduce in coming years following several new government legislations.

Buy-to-let Tax changes will discourage investors

Although some of the new tax changes encouraged a temporary increase in buy-to-let investment, the figures are expected to have fallen since the implementation of the new stamp duty charge.

Agency Express revealed that already, there was a significant decrease in buy-to-let market activity for April year on year, when compared to March.

A recent survey by Paragon Mortgages also indicates that landlords are lowering investment in UK buy-to-let property.

According to Paragon Mortgages, “It is clear that landlords are reconsidering their plans to increase the size of their rental portfolios going forwards”. The mortgage lender carried out a survey for the first quarter of 2016 and found that 9 percent of respondents intended to invest in buy-to-let property, which is 6 percent less that the last quarter of 2015.

The extra stamp duty tax is one of several tax changes announced by the UK government as part of a scheme to discourage buy-to-let investment and provide homes for new homeowners.

The tax changes mean a very significant decrease in profit for landlords; some landlords are even expected to record losses under the new rules.

New mortgage lending rules limits buy-to-rent investment

Buy-to-let investment may also be slowed by new rules being considered by the Bank of England which impose stricter lending procedure to buy-let-investors.

The new rules recommended by the Bank of England’s Prudential Regulation Authority and the Financial Policy Committee include raising the minimum rental income to mortgage repayment proportion higher than 25 percent, assuming an interest on 5.5 percent and effecting an income affordability test (non-rental incomes) to limit cases of bad debts.

The rules were proposed as the Bank looks to mitigate the risk posed by the volatile UK buy-to-rent market to the economy at large. The Bank expressed concern over the loosening of lending rules for buy-to-rent investors by mortgage lenders in a bid to secure patronage, especially as buy-to-let borrowing boomed in the run-up to the April 1 extra stamp duty surcharge implementation.

The new rules which apply to both landlords on remortgage and new landlords have already been adopted by major mortgage lenders as they seek to avoid any sanctions from the Bank of England after full implementation.

Mortgage lender, Nationwide has already increased its rental income vs monthly mortgage repayment ratio to 45 percent. Other lenders like Barclays and the Mortgage Works have also implemented stricter underwriting rules to buy-to-rent borrowing.

Will buy-to-let investment thrive?

The UK has a very large buy-to-rent market. Local and foreign investors have found UK buy-to-let a favourable investment.

Buy-to-let will remain a good investment, according to some industry experts. Ludlowthompson chairman, Stephen Ludlow explains, “Investors continue to be drawn to the buy-to-let market as the returns routinely outperform those of other investments.

“Buy-to-let investments are a highly popular alternative to the volatility investors often risk when investing in the stock market.”

The UK government’s plan to discourage buy-to-let investment has largely been successful, but some savvy investors have adopted new means of working around the rules.

Buy-to-let landlords are now setting up rental investments as limited companies. This means that they pay tax at corporation rates which is significantly lower than if they registered such property as personal investment.

Investment through limited companies also means landlords can still claim mortgage interest relief, where finance cost is offset against income; this privilege is no longer available to private landlords.

This practice has seen the number of mortgage lending to businesses rise sharply in Q1 2016, with companies forming more than 35 percent of rental mortgage applications.

Demand vs supply gap may drive buy-to-rent investment

Also, an increasing number of individuals and families are renting from private landlords. In 2015, about 22 percent of households rented from private landlords, according to ResRepublica, an independent think-tank. And, with an improving economy, the demand for rent – which already far outstrips supply – is expected to increase.

This can push people to invest in buy-to-let in order to take advantage of the lack of rental property supply. In fact, the Bank of England in its research paper, claimed that the new tax changes will not dampen the demand for buy-to-let property, with investors expecting significant rental growth in the coming years.

Presently, landlords are increasing rent to cushion the effects of the tax changes. This trend is expected to continue as figures from the Office of National Statistics show that UK rental price has continued to increase steadily since last year.

Landlords are also expected to make adjustments to their renting rules in order to reduce bad investments. Landlords may rent only to tenants who are very likely to pay their rent, according to the National Landlords Association.

Experts believe that unless new homes are built to cut the demand vs supply gap, and buy-to-let mortgage interest rates are raised reasonably, landlords will continue to thrive under the current UK property market situation.

Article Source: The House Shop