Blog: The government’s buy-to-let policy has backfired

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Over the past few weeks I’ve read several articles pointing out that rents are rising dramatically, especially in big cities like London. Many commentators have attempted to explain why this is and rightly point to a lack of supply.

Before I focus on supply, I’m also surprised that reviewers don’t also seem to realize that rents aren’t inflation-proof. (And the biggest cost to owners is interest payments and they only move one way). Rents have traditionally evolved according to nominal incomes.

However, aside from inflation, I haven’t seen a single article that highlighted the main reason for this lack of supply, and that was totally predictable.

Slowing the growth of BTL

In early 2016, George Osborne introduced two measures with the specific aim of slowing the growth of buy-to-let, by imposing additional costs on landlords. The first measure was the additional 3% stamp duty that owners have to pay when buying properties.

Second, the removal of the higher rate tax relief on mortgage interest payments where such properties were held directly in an individual’s name – thereby intentionally penalizing and discouraging homeowners who may own one or two properties (one part important in the UK market).

Then, in a rare show of coordinated economic policy, which would be welcome in the fight against inflation, the Bank of England also introduced minimum underwriting standards for BTL.

The result was predictable

At the time, many participants in the BTL mortgage market, including lenders and brokers, made it clear that over time this would cause rents to rise, as this would negatively impact the supply of properties. rental.

Who would have thought that a government policy specifically targeting the private rental sector would actually work? Has anyone at the Treasury considered that this could have an impact on rental prices? You would have thought that someone at Treasury would understand Economics 101 (the name that many universities use for their introductory undergraduate economics course) and know the rules of supply and demand.

Government policy must change

The private rental sector is a crucial part of the housing market, and it would be good if the new Prime Minister and the government recognized this. They need to understand that by not penalizing or overtaxing the industry, tenants who rent out properties (including potential first-time buyers who are saving for a down payment) can benefit.

Affordable, high-quality rental housing is crucial for any economy aspiring to grow. Bad-mouthing and taxing landlords may be popular – but I hope the new Prime Minister realizes that it won’t help tenants or the economy as a whole.

John Goodall is the Managing Director of Landbay

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