UK property prices hit as IMLA calls for attack on PRS

Property prices in the UK show no sign of falling

Last week, property investors learned just how much the their property prices increased in 2017. This news comes shortly after the Intermediary Mortgage Lenders Association (IMLA) called for an end to damaging regulatory changes to the private rented sector (PRS). Let’s start with the vies of IMLA.

IMLA claims government meddling may have irreparably damaged the PRS

Between 2000 and 2017, buy-to-let investors invested almost £290 billion into the PRS in the UK. This provided 1.8 million rental properties into a rapidly expanding sector. Not only did this help fill the gap left by the exodus of local authorities from the social housing market, it also supplied a rapid demand for private rental properties from a growing population.

IMLA reports that investment into the buy-to-let market has crashed. It puts the blame firmly at the door of the government, warning that more meddling could cripple the sector completely.

In 2015, investment in the buy-to-let market was £25 billion. In just two years, this had collapsed to £5 billion. That’s a faster decline than experienced after the Global Financial Crisis. IMLA says it has been caused by “excessive regulatory intervention on the sector”. It cites measures such as:

  • The phasing out of mortgage interest tax relief
  • 3% stamp duty surcharge

IMLA says that the increased regulatory and tax burden on investors have caused landlords to turn their backs on expanding their property portfolio, and have forced more than 20% of landlords to consider selling some or all of their properties.

Kate Davies, Executive Director at IMLA, suggests the government should cease its meddling. She said:

We urge the government to reassess the impact of the recent far-reaching regulatory changes to buy-to-let investment and allow a period of policy consolidation. Our nation’s PRS investors provide a vital service that’s vital to millions of UK tenants. We need to support and protect a sector that does so much for so many.”

UK property prices are growing faster than expected

When watching for the real pace of house prices growth, there is no better data release than the Office of National Statistics figures. It compiles its index from all sold property price data in the country. Although it lags the market by a few weeks, it provides the clearest and most detailed picture of the direction of property values. The latest data release will confound many so-called property experts:

  • In 2017, house prices rose by a faster-than-expected average of 5.2%
  • The average house price in the UK is now £226,756
  • This means that average house prices have grown by almost £1,000 per month through 2017
  • Even London, where house prices were meant to collapse, has seen values rise by an average of 2.5% over the course of 2017

This is fantastic news for property investors, but less so for the government, we suspect. After all, it has been repeated by all political parties that property investors have been behind ballooning property prices in the UK. Putting the brakes on the buy-to-let investor should have put the brakes on property prices. Clearly, this isn’t the case.

First-time buyer numbers hit a 10-year high for the property prices

Of prime concern in property circles have been the difficulty for first-time buyers to get on the property ladder. As property prices rise, affordability issues have been blamed: again, the reason for financing and affordability problems has been laid at the door of the buy-to-let community.

However, even though house prices have increased by more than 5%, the first-time buyer has been active in the market. Figures from UK Finance suggest that there were 365,000 first-time buyers in 2017. That’s an increase of almost 7.5% on 2016 and the highest number for a decade.

Clearly, first-time buyers are suffering fewer affordability issues than the government reckoned. Or they are being forced to buy properties they can’t really afford because of a contracting PRS. Whatever the reason, it proves that house price increases are not the fault of buy-to-let investment, but instead the result of a long-term imbalance of supply and demand in the UK housing market. No amount of meddling in the PRS will fix this. Indeed, it could damage not only the buy-to-let market but the entire fabric of the UK housing market.

We hear what the IMLA is saying, but think that a stop on meddling in the PRS should be the very least the government does. We would argue that the tax and regulation changes are not having the effect intended, and should be reversed before the damage is truly irreversible. However, the chance of this happening is slim to non-existent.

Luckily, there are strategies that investors can employ to reduce the worst effects of the tax changes. To learn about these, contact one of our team today on +44 207 923 6100. You should sign up for the Gladfish Newsletter at the same time. We’ll keep you updated with all the property investment news that matters. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
February 26, 2018


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