Home truths are uncomfortable

David Whittaker gives his run down of this year’s Great Buy to Let Debate, an event attended by a couple of hundred industry professionals including lenders, brokers, surveyors and letting agents – even the regulator was in the room!

Whilst the event itself did not engender any heated arguments – we’re all pretty much on the same side after all – it was good to discuss the most talked about issues facing the market today.

The opening presentation was given by Professor David Miles CBE of Imperial College London (formerly of the Monetary Policy Committee) who gave us his long term analysis of the market. Some of his conclusions concur with what most of us already believe: that housing will become increasingly expensive; more households will rent; and the tax changes (primarily the changes to income tax relief but also the stamp duty surcharge) hinder renting and are increasingly damaging.

Then we got onto the questions. I don’t have the space here to explain how everyone answers so, mostly, I’ll just sum up the overall sentiment. Also sitting with me and Prof Miles on the panel were John Heron, MD of Paragon Mortgages, David Cox, MD of ARLA and Jeff Prestridge, Personal Finance Editor of the Mail on Sunday.

Is the new stamp duty surcharge severely damaging the market, and should it be repealed?

John Heron said it is certainly distorting the market as a whole. In particular, he believes it is affecting mobility which will ultimately damage the PRS, so was in favour of a rethink and reform.

David Miles said that the changes to income tax relief would be more damaging to the market – I certainly agree with this. As an academic, he calculates that landlords would have to increase rents by 20-30% to compensate for the distortions. Of course, he did concede that in reality, landlords were unlikely to raise rents by this figure!

For me, the bottom line is that the new stamp duty surcharge is an income generator for the government and as such, it’s not going to be repealed any time soon.

Should there be a total ban on letting agents’ fees to tenants?

The panel and audience consensus was, no; the whole proposal is tokenism and populist. The costs will eventually trickle down to the tenant in the end, besides, it may never happen.

Would longer term tenancy agreements give tenants more security?

ASTs already support longer term tenancies – up to three years. The truth is they just aren’t being taken up although we don’t know why. Perhaps the tenant doesn’t want them or the landlord won’t allow them.

Are the FPC’s powers to control buy to let a step too far?

These powers were proposed before the PRA introduced its new guidelines, so to some extent, it looks like there will be no need for intervention in the near future. With any luck the FPC will put its powers on the back burner and wait to see the fallout from the tax and regulatory changes before deciding whether to wade in.

Is Basel right to propose that capital adequacy requirements for BTL be made more onerous?

Whether it’s right or not is not really the point, what is actually decided is more relevant. Currently, the committee is still deliberating; no decisions have been announced. It would appear that there is lots of to-ing and fro-ing behind closed doors, so perhaps the final verdict will be muted, although I can see that at some point in the future, the requirements could be tightened, which will force lenders to raise rates.

Will Brexit pose a threat to BTL given that economic migrants have previously fuelled demand?

The housing shortage is what has really fuelled demand, not the influx of migrants from the EU.

Besides, not all migration comes from the EU. According the ONS, in the year to September 2016, 55% of migrants coming to the UK were from outside the EU or were British citizens.

What will housing tenure look like in five years’ time?

Broadly we were all in agreement; the PRS would increase market share and home-ownership would shrink further.

The event was interesting but to really engender a proper debate we need landlords, renters and housebuilders to join the fray. And then of course, we need government to really listen, to understand, and act. And I can’t see that happening any time soon.

 

An abridged version of this article was published in Mortgage Strategy on 7th March 2017. 

 

You may also be interested in:

24.01.17
Common areas of concern when borrowing via a limited company for buy to let
Many landlords are now becoming more comfortable with buy to let borrowing via a limited company including the few additional hurdles this brings. However there is still a perception that the process is complicated and harder to get agreed but this is not always the case, as Gary McKenna, Consultant Mortgage Broker explains.
Read 

13.01.17
FAQs on Ltd Co borrowing for buy to let
Frequently asked questions on limited company borrowing for buy to let mortgages.
Read

08.02.17 
Housing White Paper highlights need to improve safeguards in private rented sector
Admitting that the UK housing market is ‘broken’, the Government’s new Housing White Paper sets out a series of initiatives to support and diversify the housing market in order to create the type of homes that people can afford and in places they want to live.
Read

04.10.16 
How the new buy to let underwriting standards will affect lenders and borrowers
Steve gives his views on what the implications of tougher interest cover ratios and increased background checks will mean for landlords and buy to let lenders.
Read

10.03.17
What the Spring Budget 2017 means for landlords
Read 

15.03.17
U-turn on plan to increase National Insurance for self-employed
Read 

Author