Love and Loss for Landlords
It wasn’t so long ago that prospective landlords were seen as the future of the property market. Everyone wanted to be one and growing a portfolio large enough to retire early was the talk at dinner parties and in pubs up and down the country.
Fast forward a few years and landlords are viewed by some parts of the press as social pariahs’, a blight upon the landscape, fit only to rip people off and deny honest first-time buyers their rightful place on the housing ladder.
For most landlords, indeed every single one I have come into contact with over the last 24 years, (OK maybe almost every single one), the portrayal of the Rachman like landlord could not have been further from the truth. Honest, keen to go out of their way to help their tenants and keep the rent down rather than drive away their good renters, they provided a lot of people with good quality accommodation who may have been left at the mercy of the more unscrupulous.
The kicker, however, was that the Government jumped on the bandwagon too, sensing a convenient scapegoat for their own miserable record of actually building the right number and type of properties at prices affordable enough for the average person to buy.
This is where Section 24 came in. Dubbed “the biggest threat landlords have ever faced” the tax changes were phased in from 6th April 2017, coming to a head in 2020. This potentially pushes landlords into a higher tax bracket, paying more tax and potentially losing access to certain benefits.
The package included the following:
Landlords of furnished lets could claim a wear and tear allowance of 10% of their rental income. With effect from April 2016 this relief was restricted to expenditure actually incurred.
Mortgage interest costs could be deducted against rental profits which effectively gives the landlord tax relief at their highest marginal rate of tax. From April 2017, this relief was reduced over 4 years to the basic rate of income tax (which is currently 20%)
From April 2016 SDLT increased by 3% for landlords (and second home buyers)
On top of this mortgage lenders have had to adapt their rental coverage stress tests and deal with Portfolio landlords, (defined by the Prudential Rental Authority as those with 4 or more mortgaged properties), in a very different way. They have to stress test their whole portfolio, see a business plan, cash flow statement and, most importantly, see that tax is being paid correctly.
These tax changes have seen traditional Buy to Let purchase business fall with a market that was at just over £40 billion in mortgage lending, now standing at around £35 billion and perhaps falling further.
Those buying new properties are more inclined to purchase these in Limited Company names now rather than personal names and it is imperative that anyone looking at an investment property gets independent tax advice before they do anything.
However, even with all of this, professional landlords are sensing an opportunity. Prices have eased and as long as they structure and gear their portfolio correctly with the right tax advice, savvy landlords can still do good business.
As for mortgages, well they are at the lowest level Buy to Let mortgages have ever been. Two-year fixes from 1.39% anyone?
Whilst the rates are enticing however, the increasing complexity of the BTL mortgage market means that many brokers are walking away from portfolio landlords, meaning it is more important than ever to look for a broker who understands the current market and the numerous foibles of each individual lender. Managing a portfolio is a serious blend of science and art these days, but for those with the patience and an expert alongside them, the landlords love of property does not have to be a loss.