Buy to Let

Buy-to-let market faces tough three years and 360,000 lost mortgages

Christina Hoghton
Written By:
Christina Hoghton

The sector has faced a barrage of challenges in the last five years, from higher stamp duty to tighter lending rules

The buy-to-let market is expected to return to growth by 2023 after seeing substantial falls in the number of mortgages for purchases over the last two years, analysis has found.

A continued dampening of the sector over the next three years is expected before the market stabilises in 2021 and returns to growth in the following two years, according to the UK buy-to-let report produced by Shawbrook Bank and compiled by the Centre for Economics and Business Research (CEBR).

The report compares this projection with a scenario in which the government’s various policy interventions – the scrapping of tax relief on mortgage interest, the 3% stamp duty surcharge and a tightening of lending rules – were not introduced.

The number of buy-to-let (BTL) mortgage approvals for purchases dropped in 2016 by 13%, followed by an even steeper fall of 27% in 2017 as the sector adjusts to new regulation.

Shawbrook’s report anticipates this trend will continue until 2021, but will be less severe than the market has experienced in recent years with strong demand in the private rental sector and a core of professional landlords countering the effects.

Return to growth

From 2021, moderate growth in the BTL market is anticipated for the years leading up to 2023.

In comparison under the no-reform scenario, Shawbrook Bank would have expected the share of buy-to-let mortgages to have stayed higher for longer, averaging at around 13% of the whole mortgage market between 2018 and 2023, compared to 7% under the new scenario analysis.

Furthermore, the analysis estimates that 360,000 more buy-to-let mortgages would have been issued if the changes to the tax system and underwriting process had not occurred.

Managing director for commercial mortgages Karen Bennett said: “While the series of government and regulatory changes have had a significant impact on the sector, we have seen the impact felt more heavily among the amateur landlord community which has presented growth opportunities for professional investors.

“Recent political turbulence has had an amplifying effect on investor confidence but positively, the market remains buoyant for those with a long-term strategy who draw upon specialist advice to fully understand the impact of these policy shifts.”