If 2016 was the year the government decided to act decisively against buy-to-let (BTL) property investment, it ended with indications that the death of the BTL market had been greatly exaggerated.

In his swan song as chancellor, George Osborne slapped 3 per cent additional stamp duty on properties bought for investment, on top of the abolition of income tax relief on BTL mortgage interest payments which he’d announced earlier (to be phased in between April 2017 and April 2020).

These two measures in combination were designed to dampen the inflationary effect of BTL on the housing market by making it a far less attractive option for small investors.

UNSUCCESSFUL STRATEGY

But by the third quarter of the year, there was little sign of the strategy having succeeded: after a rush earlier in the year, followed by a lull in the second quarter, almost 25 per cent of properties bought in the three months to the end of September were buy-to-lets, netting the government an extra £440 million in stamp duty.

Data from the Association of Residential Letting Agents, meanwhile, showed that the number of properties available to rent in September reached the highest level for 18 months.

A slightly more downbeat picture was presented by the Council for Mortgage Lenders, which revealed that in August the value of BTL loans was down by 12 per cent.

Paul Smee, the Council of Mortgage Lenders’ chief executive, said: ‘Buy-to-let continues to operate at lower levels five months after the stamp duty change on second properties.

‘This appears to be a long-term trend, and with lenders potentially tightening affordability checks ahead of the tax changes in April 2017, activity on the buy-to-let house purchase side may well remain at current levels.’

One explanation for the overall resilience of buy-to-let is that landlords have simply made adjustments, reducing the price they will pay to acquire new properties and increasing rents to cover the more exacting challenge of breaking even.

So what are the chances of Osborne’s tax rises being reversed in 2017? An effort to seek judicial review of the legislation reducing mortgage tax relief launched by two individual investors was rejected by the High Court in October.

The National Landlords Association is among those lobbying for the government to change its mind over mortgage tax relief; it predicts that more than 440,000 landlords will be forced into paying higher rate income tax as a result, while many others will see their tax bills rise. The NLA is hoping to persuade the government to apply the change to new loans only.

There have also been calls to reverse the surcharge on stamp duty for second properties.

The Royal Institution of Chartered Surveyors (Rics) said: ‘We urge the prime minister to abandon David Cameron’s previous home ownership focus and reverse April’s stamp duty measures, in order to address short-term rental supply issues.’

It estimates that 1.8 million new rental homes will be needed by 2025. Rics’ voice may carry some weight with the new government, whose attitude towards the housing sector has yet to become clear.

BUY-TO-LET STILL ATTRACTIVE

Putting tax changes aside, the fundamentals for buy-to-let investment remain strong. Research by Lendinvest shows that rental yields across the country between 2010 and 2016 averaged around 5 per cent.

Total returns ranged from 1.2 per cent a year in Darlington to 18.9 per cent a year in east London over the same period. With bank deposit rates virtually zero and stock market performance quite volatile, BTL still holds attractions for many investors.

Many landlords – particularly in London – worry that Britain’s exit from the EU will lead to a fall in rental demand, and possibly also in house prices.

But a more optimistic longer-term outlook comes from Savills: ‘The outlook for rents is stronger and more stable than for house prices over the next five years.’ In 2017, says Savills, ‘rental growth will slow’.

But looking further ahead, it forecasts rental income to grow by an average of 19 per cent over five years, with London and Bristol doing even better. BTL is about to get harder, but do your sums carefully and it can still pay dividends.

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