Taxing times for Landlords

Mike Cole

How’s this for a list of ways to seriously dissuade anyone buying a property to let out…

1.    There is less than one year left of the four years that were allowed to integrate the removal of tax relief on mortgage payments when renting a property out. Thus if you rent a property out for £1,000pcm  and your mortgage is £600pcm you no longer treat your profit as £400, but the full £1000. And are taxed at your personal tax rate on that full income. 

2.    Landlords are already paying a triple Stamp Duty payment on purchase compared to a residential purchase. On a £300k purchase (just a 1 or 2 bed flat in Watford) it’s £14k currently.

3.    The tenant fee ban means from this June, landlords now have to cover all the costs of placing a tenant in situ, some of which the tenant previously covered.

4.    Landlords are also having to factor in the risk of failing to meet one of the dozens and dozens of legal obligation to tenants in their property, the penalties for falling short of which can be significant. To this end, more and more landlords are taking up Property Management Services, which is eminently sensible, but also more expensive.

It begs the question, why would you bother buying a property to let out? Especially if you are not a cash buyer? The odds are you will be struggling to make any sort of monthly profit and more realistically will be losing money on a monthly basis. Which leaves the only possible benefit being the hope of long term capital/equity growth. And few are overly confident of that currently, although historically, of course, this evidence suggests this will be the case. Even so, you’d have to have a serious long term view and be of a very ‘glass half empty’ mindset.

It should be said that seeing as the returns from traditional bank investments are so awful currently, and have been for some time, that property investment should always be a medium to long term investment. Those who think that way will probably still benefit ultimately. It’s just the number of people prepared to wrap up such a lot of money (or have a lot of money spare to tie into one such investment) is currently very minimal.

Is this a problem? Well, it’s slowed the market massively. It’s had much more impact than Brexit. FACT. Investor buyer numbers have disintegrated (at least in the South) and prices have dropped, although First Time Buyers would no doubt be glad of this impact.

But the other risk is to available properties to let. As many millennials make the lifestyle choice to rent with the relative freedom that affords, it requires a constant flow of new rental stock. And while people aren’t buying to let out and large numbers of those who currently do are looking to get out of the market, the very opposite is happening.

As with so many things economically we always seem to be too far one way and then in trying to redress the balance go too far the other way. I’m not sure why finding a happy medium is so hard.

My personal view is that either the Stamp Duty changes or Mortgage Relief changes need revoking. One of those plans would have had a significant slowdown effect, both of them together has really been a step too far and is creating a bigger problem than it was trying to solve.