Buy To Let Sector Under Pressure

As the government announce an official investigation into the house building sector, it appears that the buy to let sector may also come under the spot light. The problem with UK property is the fact that the number of new house builds has always seriously lagged behind the increase in demand. This has created a situation with more and more people chasing few and few numbers of houses on a relative basis.


ile the investigation into the house building sector was a surprise, the calls for a closer look at the buy to let sector seem a little more predictable. The problems seems to be the attractive tax breaks given to mortgages used to fund buy to let homes. As many of these properties are bought as part of a business, they receive attractive tax breaks on their mortgage interest charges, effectively reducing the overall cost.

As house prices have risen, this has allowed many in the sector to purchase further properties using properties from their portfolio’s as collateral. This vicious circle allows business people to cover their expenses with rental income, thereby producing more and more surplus funds for further investment. The rental market has also grown substantially over the last few years as the amount of affordable housing falls, when compared to the increase in demand, forcing many into rented properties.

If the government were to authorise a substantial increase in new house builds this would reduce the pressure on the rental market, and a reduction in tax breaks would make buy to let activities less attractive, in turn freeing up more properties for house buyers. While on the surface this looks like a tricky situation, it should be fairly easy to sort out, but will the authorities be brave enough to act – with pressure from the house builders, keen to ensure supply is limited, thereby keeping house prices artificially high.