Buy-to-let landlords will be left with little alternative but to raise rents or sell their properties due to the government’s punitive new tax regime, says a specialist lawyer.
The pending removal of landlords’ mortgage interest tax relief from next year does not just mean that landlords will no longer be able to deduct mortgage interest payments, but it will also force around 440,000 basic-rate tax payers into a higher tax bracket, according to the National Landlord Association (NLA).
The current rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.
By April 2020, once they have been withdrawn altogether, the disastrous consequences of Section 24 will mean that it is likely that higher-rate tax payers will only receive 50% of the relief that they currently get, which will eat into their rental returns as they will be required to pay significantly more income tax.
Graham Ireland, private client partner at Lancashire-based WHN Solicitors, has accused ministers’ plans to tighten taxes as using landlords as scapegoats for problems faced by first -time buyers.
Graham believes one of the real reasons people cannot get onto the property ladder is that lenders are demanding higher interest rates for buyers who wish to borrow higher percentage mortgages.
He commented: “We have two landlord clients with large portfolios who have decided to sell some of their properties because of the upcoming changes and the changes that have been implemented over the last few years. One of them has over 30 properties. Their view is that the government seems determined to penalise landlords.
“They have no doubt that the changes will result in rents being increased, partly because of supply and demand and partly because landlords will need to recover some of their extra costs by raising rents.”
Tim Melia, director of Melbro Group Ltd, which owns and manages both commercial and residential properties across East Lancashire, believes that the tax changes are putting “greater strain” on buy-to-let landlords and have made it so difficult that “it’s no longer worth the effort to continue”.
He continued: “We already break even at best on the residential element of our portfolio, but in some years have lost money and additional planned changes will only make it more difficult.
“The government sees landlords as the reason why many first-time buyers cannot get on the property market, but the main problem is the fact that first-time buyers are penalised by high percentage mortgages demanded by lenders.”
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The Government is burying its head in the sand thinking that rents are not going to go up, as will homelessness and evictions . But with Landlords selling up, and other burdened with punitive tax increases, anyone with half a brain cell can predict what is going to happen (unfortunately this excluded George Osborne).
The Government has two choices repeal it now of its own volition (and with whatever spin they can put on it); or after rents, evictions and homelessness have gone through the roof causing untold misery to millions of Tenants in a couple of years time; with egg on their faces.
I have 3 2 bedroomed and 1 3 bedroomed property that are very well maintained and have had the same hard working tenants for several years; one couple stayed for six years whilst saving a deposit for their own home. I could charge more but up until now I have only raised rents every 3 or 4 years as inflation has been very low and I have made a fair return on my investments however I am going to raise rents for January and will continue to raise each year to offset some of my loss due to Osbournes punitive tax changes. Hammond will find out BTL investors will either raise rents or sell up. Neither of these will help tenants who often rent for a few years whilst they save a deposit.
Strange how landlords have been bailed out by record low interest rates for years but never passed on these savings to renters, instead they put rents up. If landlords sell up they will be bought up by first time buyers or other landlords so will have no effect on the rental market. Those who put rents up will face higher risk of voids as rents are too high despite record low mortgage rates. People will just stay home, share more or encourage large corporate renting company blocks just like what happened with student accommodation.
Lots of landlords own their rented properties outright, its only those reckless over leveraged on huge debt who need to worry. Its time to get to professional landlords rather than greedy gearing speculators.
Its time to get to professional owners rather than greedy gearing speculators.
Brit Sixteen Sixty Four:
By 'professional landlords' do you mean the institutional ones which, for example, in the student market, charge three or four times what traditional landlords charge? On the one hand you want low rents and on the other you imply you prefer those who charge much higher rents. And you call the sector that charges lower rents 'greedy gearing speculators.' You don't make sense.
As for saying landlords put rents up when interest rates have been at record low rates, many of us didn't, actually. Again, you don't know what you're talking about. Rents are really low in loads of parts of the country. Or are we to all agree that certain parts of London are the centre of the universe and all policy and debate should take this as their starting point?
Also, if landlords sell to owner-occupiers (unlikely in many areas as people don't meet the mortgage lenders' criteria, don't want to buy and so on), then that house IS lost to the rental market. What or who will replace that rented house?
As landlords who have not put the rent up - I have had one tenant paying £325 for 11 years and never put the rent up - why do you think we can't? The risk of voids isn't high in many areas as demand is so high.
Also, if it weren't for the BTL model of leveraging - often at about 85% LTV in the past - (compared to owner-occupiers of 95%) - there would be an even worse shortage of rented housing now. Cash buyers or accidental landlords wouldn't be able to expand housing to anything like the same degree. Borrowing finance in business is normal. Do you think finance should be banned for all business or just that BTL mortgages should be made illegal? You say it's risky to borrow to buy houses, but that is the way people buy houses in this country. Should all mortgage lending be banned maybe? The points you make are highly contradictory and if followed would lead to a much worse housing crisis.
I would like to see an end to interest only mortgages to level the playing field. It would stop speculators getting recklessly in debt with the gearing model which id helping push up house prices out of control.
I have 11 one bed flats in Bristol. My rents are some of the lowest in the area. It's my pension. I put my rents up when I have to and haven't done so in 3 years. I now can not absorb the new stamp duty rise when I add to my portfolio, I can't absorb the new licensing scheme when it comes in. (Sorry should I of said new tax scheme) and also on top of my £500k mortgage it will be hard to make money. Plus have they ever thought about when our tenants trash our property and just vanish and when it takes weeks to put back straight they charge us from day one council tax! I will be increasing my rents every year now. Thank you government for putting new monetary burdens on my tenants that some have been there for 9 years.
Lets not forget the ridiculous 100% council tax bill when the property is vacant. Yet a single occupant gets 20% discount. Still cant figure that one out. Then the lost of the 10% wear and Tear. Brit sixteen sixty six....the large student portflios you refer to are limited companies owned and sheltered by their buddy Osbourne. Walk a mile in our shoes before condemning us. Come see my 3 bed rented fully furnished....now stripped and vandalised....
One thing we will all agree on is that Brit Sixteen sixty four is very uneducated on this subject or is simply just an idiot. Either that or just fishing for our comments.
The standard in those "professional landlords" portfolios is definitely as a whole not as good as the "non professional, reckless and over leveraged" landlords.
Take my advice, go away and do some proper research or speak with some real landlords before making comment.
I guess Graham you don't like the truth. Landlords have been bailed out the last 7 years with ultra low interest rates, QE and the commercial element of funding for lending which still continues. It has driven buy to let mortgage costs to the floor yet people like Savils says rents are going to soar over the next 5 years. Something a bit wrong there.
Owners have been bailed out the last 7 years with ultra low interest rates. It has driven owner occupier mortgage costs to the floor.
Student Tenant (www.studenttenant.com) are here to help any student landlord. It is completely free to advertise your property and it will be listed on Rightmove and Zoopla for full national coverage. This will save the landlord money when they are about to be squeezed by the tax laws and higher rates from lenders mentioned in the article. Hopefully in turn this will prevent large rises in rent.
The letting agency model is changing. Student Tenant also charge fixed management fees rather than high street agents that take a percentage, which obviously rises as rents rise - for no extra work! Greedy high street agents!
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