It may have been lost among the more-attention grabbing aspects of George Osborne’s Budget last week, but the provisions seeking to take some of the heat out of the buy-to-let market may prove a huge boost for institutional investors within the PRS market [see Leader, 10.07.15].
The changes proposed to the amount of tax that can be deducted for interest payments for buy-to-let properties will make a lot of private landlords reconsider their position and probably exit their investments as it is implemented from the 2017-18 tax year.
The days of an individual investor leveraging up on a unit by unit basis will now largely be gone and we must remember this type of investor still forms a vast proportion of the PRS market. So this is a setback for those people looking to stay or enter the market, but will be a big help for institutional investors, who generally aren’t faced with the same pressures - pension companies are exempt, for example - and who will welcome the reduction in supply and competition at a time when the market is moving slowly towards maturity.
Many people had predicted that the next couple of years could see the established majority for private landlords significantly change. In 2010, 89% of private rented dwellings were held by private landlords, for example, but with these changes the pendulum could swing much quicker than anyone could have envisaged.
With more and more investment being announced from institutions on a daily basis and exits by people seeking to realise their investments in buy-to-let, we could even see the market shift to 50/50 before the next election.
Jonathan Northey, real estate partner, DLA Piper