Is The Government Winning Its Battle Against Buy To Let?
I don’t know when this exactly started, but all of a sudden, legislators and The Bank of England are not shying away from issuing new laws or regulations that restrict the benefits of buy to let investors. Matthew Lynn form the Daily Telegraph even compares the recent clampdown to a flame thrower attack against landlords.
To help refresh your memory on these actions, here are some notable few: new stamp duty rates of 3 per cent for second homes were implemented just a few days ago; and next year, the rule which allows landlords to offset the interest they pay on mortgages against their tax liability will also be phased out.
But wait, the changes aren’t over yet!
This week, the Bank of England proposed another set of rules which will make it harder for landlords to secure a mortgage.
Why are the government and The Bank of England clamping down against buy to let investors in the first place?
The Week reported that government officials are concerned that the high demand for buy to let property are pushing property prices to a record high and in turn, first-time and young buyers are priced out of the property market.
These officials hope that taking out benefits for landlords will help cool down the demand and ease the pressure on property prices.
As for The Bank of England, they are more concerned about the country’s overall financial stability.
The Week in the same report explained that bank officials are concerned that the current demand for buy to let property is a huge bubble that might burst in case any change in the market occurs. In the event that landlords leave the market en masse, it will cause a painful crash that may be paralleled to those experienced during the financial crisis.
Lynn admits that there is a big problem about property prices in the UK. But in his opinion, the proper way to fix the problem is to create more supply for housing and raise interest rates back to realistic levels to choke off speculative demand.
Lynn argues in his article that planning restrictions in the UK are too tight, and this is the big reason why there is an overwhelming lack of supply for newly built homes, despite having a constant demand for affordable housing.
His second solution of raising interest rates to choke off speculative demand is grounded upon the assumption that people with spare cash won’t have to pour it into property to find a return.
Kate Faulkner, the owner of propertychecklists.co.uk also wrote in her blog that the changes will only deprive the market for more stock of rental properties and further increase rental rates.
Faulkner suggests that The Bank of England should instead encourage investors to buy uninhabitable buildings and convert them as rental properties to increase the supply of rental property in the UK.
I agree with the opinion of these 2 experts on this issue. Putting restrictions against buy to let investors won’t work when they do not address the main culprit behind high property prices– which is lack in supply for housing.