Measures which discourage investment in the private rented sector can only push up rents and harm tenants more than landlords, a report from the Intermediary Mortgage Lenders Association (IMLA) has warned.
The report entitled “Segmenting the UK mortgage market” examines the key issues facing the main segments that make up today’s mortgage market. The report defines the market segments as: first time buyers, moving homeowners, buy-to-let (BTL) investors, lifetime borrowers, remortgagers and further advances.
Assessing the possible impacts of July’s BTL tax changes, IMLA argues a higher tax burden for landlords – which will push some into losses after tax and raise the effective tax rate on their buy-to-let above 100% – may slightly skew the market in favour of owner-occupied house hunters, by reducing the price that landlords are prepared to pay for any given property.
The risk, however, is that these changes and the threat of tighter BTL mortgage regulation will constrain the supply of available rental properties at a time when the fundamentals of population growth and low housing supply are driving an increase in demand, and that institutional investment will fail to make up the gap.
The IMLA report shows total lending across the mortgage market this year was running below its 2014 level from January to May. Since then, there has been a sharp recovery and 2015 may be shaping up to be a mirror image of 2014.
By far the most robust recovery has come in buy-to-let, but this must be placed in context of an 81% decline after the recession between 2007 and 2009. This compares with a 60% drop in remortgaging volumes, 56% among home movers and 53% among first-time buyers over the same period. BTL lending volumes remained 40% below their 2007 peak in 2014, and IMLA argues that it is responding to rather than driving growth in tenant demand in the private rental sector.