According to a source at the Bank of England, 15 per cent of loans on their books are buy-to-let mortgages. The Bank has spent the last few years yanking levers for owner-occupiers to make sure they’re happy with its stress testing for interest rate rises. In the absence of such a shock absorber for buy-to-let mortgages, the Bank seems to believe that the moment rates start to rise, there’s going to be a rush for the exit.
This would explain the slightly red-tinged Autumn Statement. Osborne was building on an earlier assault on property investors in the Budget when vital mortgage interest relief against things like wear and tear were slated for reductions.
Putting people off becoming landlords and servicing the private rented sector seems counter intuitive to me and, in the absence of an informed understanding of why people invest in buy-to-let, a strange decision. Perhaps they’ve been reading too many tabloid headlines and imagine everyone is a greedy, over-privileged 23-year-old with three properties held on 100 per cent interest-only mortgages.
Our figures show the reality is very different indeed. Over 50 per cent of buy-to-let investors buy with cash and do so for two main reasons. Firstly, they have little else to invest their money in and find the potential total returns just as appealing as providing a useful service.
Secondly, many buy as a future investment for their children, which makes a lot of sense and is something they’re unlikely to run away from.
It may well be that a simple interest rate payment coverage test is outdated, but it seems to me that restricting supply into this burgeoning sector without offering build-to-rent investors more breaks may have unintended consequences. The old adage goes that, when you introduce a new tax, more often than not, the intended victim doesn’t end up paying it. This time, it might just end up being tenants who suffer.