Will buy to let tax curbs deflate property prices?

The UK government seems intent on hitting the buy to let market with an array of regulatory and tax changes announced over the last few months. This is not the first time that this particular sector has been targeted, with some suggesting it is easy money when government budgets are stretched, but many are now asking the question, will buy to let tax curbs deflate property prices?

First-time buyers

There is no doubt that buy-to-let investors have been very active in the UK property market for some time now. As the affordability factor moved against more and more potential first-time buyers there was a significant shift towards renting. This obviously increased demand for buy to let properties and exacerbated an issue which has been brewing for many years now. First-time buyers were unable to afford rising property prices, many shifted towards rented property which led to further demand from buy to let investors. Is this a vicious circle in the making?

Affordability factor

Looking back it is difficult to see a time when property prices were rising slower than household incomes for a prolonged period. It seems that the first sector to benefit from any sign of an economic upturn is the property market and household income increases tend to lag by some margin. As a consequence, the affordability factor is a much discussed subject in the world of property and is becoming more of a problem.

While there is no doubt that a lengthy period of low base rates in the UK has assisted some first-time buyers, unfortunately the damage had already been done for the majority of would-be first-time buyers. Scraping together money for a deposit is challenging for many, the inevitable future rise in base rates will lead to higher mortgage rates and we could see major issues with mortgage defaults in years to come.

Buy to let investors

The almost inevitable short-term reduction in activity by buy to let investors once new regulations and tax rates kick in will take some of the steam out of the UK property market. However, there is still upwards pressure on rents, a major shortage of affordable housing and even long-term plans to increase new builds will take many years to have an impact. As long as there is a shortage of affordable property in the UK we will see more and more people move towards the private rental market. The recent tax changes in this sector will hit buy to let investors in the short term but if there is growing demand for rental properties then perhaps much of this will be passed on to their tenants?


There is no doubt we have seen a short-term impact on the UK buy to let market as many digest the forthcoming regulatory and tax changes. However, with a recent forecast suggesting UK property prices will rise by 6% in 2016, against a marginal increase in household incomes, there are still challenging times ahead for potential first-time buyers. This growing affordability issue will push more and more people towards the private rental market and while landlords will see a short-term jump in their costs, will they be able to pass much of this onto their tenants?

A short-term reduction in buy to let investment activity and a growing problem with affordability for first-time buyers would normally reduce upward pressure on UK property prices. However, we also have the problem of a lack of supply. All in all, it seems likely that UK house prices will be squeezed higher and higher for the foreseeable future.

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