Landlords’ dilemma as buy-to-let changes bite

Tax changes to buying and renting out property mean that some landlords are considering selling up or increasing rents. Jonathan Daines, CEO of, gives his view

It could be a tough year for the residential property market. But let’s face it, with Brexit, Donald Trump in the White House, a tougher tax regime, rising inflation and potential interest rate rises in the offing, anything could happen.

One thing is certain, however, as Britain enters a new economic era under Theresa May’s government – the rental market is facing major challenges.

Thanks to the last Budget, landlords (particularly those with the largest portfolios and highest incomes) have been hit hard by the loss of mortgage interest tax relief and under the changes to tax calculations they will no longer be able to claim relief on finance costs such as mortgages, loans and overdrafts, ultimately being taxed on income rather than profit.

For higher rate taxpayers, mortgage costs above 75% of rental income will make their buy-to-let investments loss-making.
And then there’s the stamp duty on additional homes to contend with as well, which must have come as a bombshell to many.

Selling up

The changes are being phased in over four years from this April – but the impact on the UK property market is being felt right now. The government expects such moves to bring back buy-to-let properties to the first-time buyer market – and it could well be correct. Because a recent survey conducted amongst our own clients shows that as many as 35% of buy-to-let landlords are considering selling their second property rather than take the tax hit. And for first-time-buyers that could mean they will be able to pick up a bargain.

The National Landlords’ Association is forecasting that as many as half a million flats will be coming onto the market, bringing smiles to the faces of home buyers and the more younger buy-to-let investor. Other landlords are sitting tight, however – but 74% of those we surveyed said it is likely they will have to increase rents to cover losses.

Buy-to-let has been a runaway success in recent years and its popularity is being maintained – as evidenced by the fact that £4.7 billion was borrowed in mortgages last November: up 9% on the previous year. Indications are, however, that because of the tax changes, levels of borrowing in 2017 will be lower than the post-credit crunch peak year of 2015.

Student accommodation

Many landlords have annually been extending their property empires – with terraced homes and flats being the most popular purchases. Such properties have traditionally been the favourites of students – and so have visions of squalid student bedsits! But today there has been such an explosion of new-build quality student accommodation by universities across England. Investment topped £3 billion last year, partly driven by the desire of students favouring purpose-built accommodation.

Private sector landlords wishing to keep hold of their student tenants don’t have any option other than offering well-maintained, nicely furnished accommodation. One big plus in their favour, however, is that they can provide far more competitive rents than the universities themselves.

Landlord portfolios

Research from the Council of Mortgage Lenders suggests that 62% of landlords own only a single rented property, while just under half own more than one property. Many of them being motivated to acquire an additional property as a contribution to their pension provision. Indeed, the shift towards smaller portfolios among buy-to-let landlords has been decidedly marked since the Council’s last similar survey 13 years ago.

Whatever changes there may be, however, the fact is that rental demand is increasing. Unfortunately, the supply of quality rental accommodation ap-pears to have slowed.

For new landlords entering the market, buy-to-let properties can be great investments. There’s a lot of work involved before taking the plunge, much of which can help with – rent on time guarantee, sorting out legal work, insurance and thinking about property maintenance. But cru-cial to the whole investment is finding the best mortgage deal.

Mortgage finance

The market is very competitive, with different providers and a huge range of products. So it makes sense for landlords to seek sound independent advice before taking out a mortgage – bearing in mind that there are very important differences when comparing a buy-to-let deal with that of a residential home.

For example, buy-to-let mortgages require a larger deposit than regular loans (typically 25%), and landlords will need to show the lender that the rent will cover interest payments on the mortgage by at least 125% (and many lenders are increasing this up to 145%) – in case the property stands empty for a while or needs maintenance.

Landlords should do their homework, get a trustworthy broker and find the mortgage deal that works for them. That way, they’ll be as safe as houses!

Jonathan Daines is CEO of

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