Tax Breaks and BTL Lending Boost Investment in UK Property

As the private rented sector (PRS) grows year upon year, the government and buy-to-let finance companies are stepping up to help investor landlords. 2010 saw a further jump of 300,000 PRS households, bringing the total to 3.3 million.

The English Housing survey, published by the Department for Communities and Local Government, reveals the percentage of households in the PRS stands at 15.6% - that’s almost one in six of all households! Further data from Capital Economics forecasts this figure will be one in five by 2015.

£2.9 billion in just 3 months

This boost to the buy-to-let sector is being leveraged further by increased BTL lending from specialist mortgage providers. Mortgage Trust’s offerings include a two-year tracker at 4.30% and a two-year fixed at 4.89%, with loan-to-value ratios of 65% - 75%.

Paragon Mortgages also reports strong growth from BTL lending, with a six month increase of 34.8% which equates to £39.5 million. Overall, since Paragon returned to the market last September, its completions have hit £50.2 million.

John Heron, Paragon Group director of mortgages, tells us: “Competition in the buy-to-let market is improving, which is opening up choice for landlords and ultimately tenants.”

Indeed, BTL lending across the board has risen 38% from Q1 2010 to Q1 2011. Lending in the first three months of 2011 totalled £2.9 billion across 27,600 loans.

Westminster slashes stamp duty tax

Michael Coogan, director general of the Council of Mortgage Lenders (CML), explains: “Demand for rental property remains strong and as more funding becomes available we would expect to see buy-to-let lending increasing. The performance of buy-to-let loans is also holding up well.”

Westminster is also doing its part to boost further investment. Chancellor of the Exchequer, George Osborne, announced the change to Stamp Duty Land Tax in the March 2011 Budget. Investors purchase bulk stock will now only pay stamp duty on the average price of the properties, as opposed to the overall value.

Private rented sector “tenure of choice” in UK

It is no surprise that the latest PRS trends survey of experienced landlords reports confidence in the BTL at a high. Paragon communications manager, Michael Clarke, comments on the findings.

“Landlords in the PRS have enjoyed a buoyant start to 2011, with growing levels of tenant demand, rising rents and strengthening yields. There is evidence that high levels of tenant demand are placing upward pressure on rents and more homes are needed in the PRS to meet this demand.”

He continues: “Private renting is increasingly becoming tenure of choice in the UK and the government’s reforms are likely to add to this. The UK housing market needs the PRS to expand in response to the anticipated future demand for tenants and a fit-for-purpose housing market.”

Sector stats at a glance

According to the PRS trends report (Q1 2011), the average UK yield is 6.2% and the average portfolio value is £1.51 million.

More investors are also purchasing for cash, with gearing standing at just 41% - despite increased BTL lending provision. This healthy level of cash purchase indicates further confidence in the market and, of course, the lower the leverage, the higher the yield.

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Want to find out more about investing in UK property? Call David Ball or Russell Bonner on +44(0)1273 447 300 or email david@axiscontact.com or russell@axiscontact.com

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