Buy-to-Let Splurge Seen Before U.K. Tax Increase, Survey Shows

  • Bank of England survey shows lenders see pickup in 1Q
  • Carney said in Dec. to expect tighter macroprudential policy

U.K. landlords may be set to splurge on buy-to-let properties before new government tax rules take effect later this year, according to a Bank of England survey.

A gauge of demand for buy-to-let lending over the next three months climbed to the highest level since 2007, the central bank’s quarterly survey of credit conditions showed on Thursday. The data suggest borrowers are rushing to beat the future tax increases that Chancellor of the Exchequer George Osborne announced in November.

“In recent discussions, most major U.K. lenders noted that growth in BTL house purchase activity could slow in 2016,” the BOE said in the survey. “Some BTL activity could be brought forward” to the first quarter to circumvent the changes, it said.

As a shortage of homes in the U.K. drives prices higher, the government is trying to bolster supply and focus on first-time buyers. From April, buy-to-let properties and second homes in the U.K. will be subject to a stamp-duty home buyer tax 3 percentage points higher than those who are purchasing a property to live in.

“There is an expectation that BTL lending will slow this year,” said Philip Shaw, chief economist at London-based Investec Securities. “There might be a shift toward conventional mortgage borrowing, given there’s a shortage of properties in the U.K., but there might also be some alleviation of house-price pressure.”

Supply Shortage

Property prices rose for a 12th straight month in December to a high of 292,077 pounds, LSL Property Services Plc and Acadata said this week. The Bank of England has set loan-to-income limits for some mortgages, and is monitoring the buy-to-let market for potential risks.

The central bank, which held its key rate at a record low 0.5 percent on Thursday, said government changes to taxes “were likely to reduce demand for buy-to-let properties.”

“The magnitude of the impact on house prices was likely to depend on how far other buyers – including first-time buyers – could to some degree offset reduced housing demand from buy-to-let investors,” the minutes of the BOE’s January meeting said. “These measures were likely to exert a dampening effect on the housing market, although its likely extent remained unclear.”

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