Landlords React to Interest Rate Hikes and Prime Property Market Dynamics - 8th Aug Property Bulletin

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Reintroducing Mortgage Interest Relief for Landlords to Revive the Rental Market By Carol Lewis The Sunday Times

There's a growing narrative of landlords abandoning the rental market due to higher interest rates, rental reforms, and stricter energy efficiency regulations. The recent hike in interest rates by the Bank of England, marking the 14th increase, has further fuelled concerns. The National Residential Landlords Association (NRLA) reported that a third of private landlords intend to reduce their rental properties this year, potentially resulting in a loss of 735,000 rental properties across the UK if rates peak at 5%.
However, despite this apprehension, capital gains tax receipts do not indicate a mass sell-up just yet. In 2022, England alone saw 11,000 more rental properties compared to the previous year. Property sales to investors remain steady at 11%, slightly down from 12% in 2021 to 2022 but consistent with figures from 2017 to 2019.
The market's landscape shifted in 2016 when the government introduced an extra 3% stamp duty for additional home purchases and gradually reduced mortgage interest rate relief. Still, a significant number of landlords selling properties last year, about 140,000 (73%), were retiring, having been early adopters of the first buy-to-let mortgages in 1996.
The allure of using property as a pension has diminished with rising interest rates and falling house prices, particularly in the south. The north offers more appealing yields, leading some southern landlords to invest there. Yet, many landlords find their profits now hovering around 4% of rental income, making property investment less attractive.
The current generation of landlords will eventually leave the market, leaving few financially capable young individuals to take their place. To ensure a stable long-term rental sector, the government should consider making buy-to-let viable again until it finds a solution to build more affordable homes.
While abolishing capital gains tax on landlord sales might benefit the wealthiest, it wouldn't aid tenants or Treasury tax receipts. Instead, with interest rates set to peak this year, reinstating mortgage interest rate relief for landlords could be a more viable option. This relief could be tied to restrictions on rent increases, preventing landlords from using rate rises as a pretext to raise rents.
Both tenants and landlords are facing a crisis, and action is needed. Reintroducing mortgage interest relief for landlords could be a small price to pay for revitalizing the rental market and ensuring its functionality.
Cash buyers are gaining an advantage in the UK's prime property market, while mortgaged purchasers are cutting their budgets in response to higher interest rates, according to research by estate agent Savills. Most cash buyers (72%) reported that their purchasing budget remained the same, while around 60% of those looking to take out a mortgage with a loan-to-value ratio above 50% said they had reduced their budget. The demand for properties priced at £2 million or more has declined since April due to concerns about high interest rates and the economic outlook, but it remains higher than at the end of last year.
According to research from Savills, cash buyers, younger needs-based buyers, and relocators are the driving force behind the current prime UK property market. The analysis reveals that the commitment to move remains higher than in 2022, with a net balance of +24% looking to move in the next year. Ho

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