Buy to let investors flooded into the UK's property market in February in a bid to beat April's stamp duty tax hike, according to recent figures.
The National Association of Estate Agents (NAEA) says that buy to let investors saturated the market, with 85% of estate agents saying they had seen a rise in landlords wanting to buy in recent months. Investors are hoping to beat the additional 3% charge in stamp duty for buy to let properties completed before April 1.
February's increase in buy-to-let activity follows January's increase when 72% of estate agent saying they had seen more investors coming forward. Indeed, the rush of buy-to-let investment in housing saw demand rise in February to its highest level for 12 years.
Landlords try to complete their sales
The NAEA's managing director, Mark Hayward, said: “We have seen a real sense of urgency as landlords try to complete their sales ahead of the introduction of the new stamp duty rate. However, the pressure with growing demand for housing means that first time buyers have to compete with buy-to-let landlords and, as a result, they've lost out.”
Bank of England urges new BTL affordability tests
Meanwhile, the Bank of England says that buy-to-let landlords will need to face new affordability tests which will limit how much they can borrow in future. In addition, the Bank is also saying that mortgage lenders should be stricter in granting buy-to-let landlords a mortgage.
Under their proposals, the Bank is wanting lenders to look at an applicant’s wider financial situation and not just the potential rental income from the property.
Lenders should also consider all of a landlord’s costs that they may incur while renting out a property, any tax liabilities, as well as running costs and maintenance bills.
Landlords’ additional income to be verified
Currently a landlord can declare additional income to support their application, but the Bank says this declaration should become 'verified'. Over the next three years, the Bank predicts that lending to buy to let landlords will fall by nearly 20%.
However, the Bank is also aware that a mass sell-off by landlords has the potential to destabilise the UK economy and the situation was highlighted by Mark Carney, the Bank's Governor in December.
The Residential Landlords Association's policy director, David Smith, said: “The Bank should tread carefully and avoid making moves that might stifle the supply of rental properties the UK desperately needs.
“The Bank should not overreact to the buy to let application surge as people are wanting to beat the tax increases and it's likely the effect of the Chancellor's changes will impact significantly the demand for borrowing.”