Warning that buy to let tax changes will damage sector in two years time

Respected credit ratings agency Fitch says buy to let will thrive for the next 12 to 24 months but the effects of the stamp duty surcharge and mortgage interest tax relief will then kick in - causing damage to the sector.

It says the UK’s buy to let performance has been strong in financial terms, with one-month-plus arrears being 2.43 per cent in January, compared with a similar  2.35 per cent for prime transactions, while low void periods and an absence of new housing supply keeping the sector in good shape. 

But the agency then warns that the surcharge and tax changes will eventually affect landlord behaviour. 

“Industry surveys suggest that existing landlords are less likely to add new properties when the tax changes take effect, and some may look to sell. Our gross new mortgage lending forecasts for UK incorporate the potential for the announced changes to slow the growth in BTL origination” says a Fitch report to investors.

“Over the longer term, government and regulatory intervention will have a larger impact” it says, especially if a recent Bank of England proposal comes to fruition. 

“The proposal does not set limits on loan-to-value, debt-to-income, or interest coverage ratios [but] if these were adopted, this could make BTL less attractive for landlords if rental yields do not rise sufficiently to offset the impact of such affordability rules” the note says.