Buy-to-let landlord optimism at its highest level since 2007

The planned increase in capital gains tax (CGT) is likely to put some potential investors off from purchasing a buy-to-let property. However the latest figures from the National Landlords Association, shows that buy-to-let landlord optimism is at its highest level since the fourth quarter of 2007.


Some 57 per cent of investors state that their overall prospects for lettings over the next three-month period look good or very good. Additionally, 28 per cent said they expect the rental market as a whole to improve further over the next three months.

The coalition government’s plan to raise CGT has come just as confidence appeared to be returning to the buy-to-let market.

According to Property Hawk, professional landlords are now able to secure 80 per cent loan-to-value mortgages, while rates are slowly improving. Rents are fairly stable, if not rising and demand is strong from tenants because first-time buyers are delaying purchases. Generally, with the stabilisation of the housing market, landlords are feeling reasonably confident.

Less than three years after Alistair Darling introduced a flat rate of CGT at 18 per cent, the new coalition Tory and Lib Dem government has confirmed this it is committed to raising the rate paid back up towards income tax levels. Government sources predict that CGT on buy-to-let properties could rise from 18 per cent to a figure that could be as high as 40-50 per cent.

Also, the annual exemption limit for CGT, currently £10,100, may come down to as low as £2,500.

The parties’ say this will help pay for raising the income tax threshold and have been keen to stress that increases will be for non-business assets, with allowances made for entrepreneurs. As a result investors, buy-to-let landlords and second homeowners are likely to be the most affected by a higher tax rate.

Buy-to-let has benefited from many years of favourable tax treatment. Buy-to-let landlords are charged tax on their rent, which is considered income, but they can offset mortgage interest, letting agency fees and maintenance costs against this.

The arrival of an18 per cent flat rate CGT provided many landlords with the opportunity to cut their tax bill further. Previously CGT was paid at income tax level, but there was a system of taper relief that allowed investors to reduce their tax bill, depending on how long they had owned a property. For example a higher rate taxpayer could see their tax bill fall from 40 per cent to 24 per cent over ten years.

It is still unclear whether a move to raise CGT would also include the reintroduction of taper relief, to encourage long-term investment, but until the emergency Budget we won’t really know.

Research by Datamonitor, an analyst, said buy-to-let lending could increase by more than 230 per cent in the next three years to £26.1 billion.

The Council of Mortgage Lenders said the number of buy-to-let loans fell 15 per cent to 22,000 in the first three months of 2010. Over the same time, the value of lending also declined, by 12 per cent to £2.1 billion.

The Association of Residential Letting Agents said rental income is improving. Its latest quarterly report shows average yields on flats rose 0.1 percentage points to 5.1 per cent in the first quarter of this year.