Probably the biggest change for landlords is the recent introduction of a tougher tax regime for landlords. Since April 2019, mortgage tax relief is gradually being cut back over a three year period. By 2020, landlords will pay tax on the revenue rather than their profits after mortgage costs.
Other changes include the introduction of an extra 3 per cent stand duty charge for anyone buying a property that is not their main home, which was introduced in April 2016; along with many councils across the UK enforcing Selective Licensing Scheme and stricter requirements for landlords such as minimum energy efficiency standards. Nottingham city Council recently implemented a Selective Licensing Scheme for those landlords who own rental property in the Nottingham City area.
There are also various proposals in the pipeline that if implemented will affect landlords. These include heavier regulation of the buy to let market, longer tenancies, deposit caps and a consultation on of the use of a Section 21 notice, with critics calling for them to be banned.
These changes, coupled with a worry that house prices are set to tumble as a result of uncertainty over Brexit, are understandably having an impact on the buy to let market.
The UK buy to let market is being quite severely impacted by the recent changes and the number of new of landlords getting mortgages reduced as a result. In 2007, when buy to let was at its peak, around 180,000 mortgages were approved to landlords. Whilst in 2018 these figures were at 70,000 (UK Finance).
On top of this, existing landlords are offloading around 3,800 properties a month, according to the Ministry of Housing.
The recent changes not only eat into a landlord’s profit, they also cause an administration burden and many landlords are claiming that the reduction in profit means that it is no longer worthwhile. Whilst new landlords are priced out of the market by the stamp duty increase.
Although the current market looks pretty bleak, there are still opportunities for investors to make money from buy to let.
In some areas in the UK, there is a strong demand for rentals coupled with low property prices, allowing investors to achieve a decent rental yield. University cities are particularly attractive for investors, due to the demand for rentals.
Those landlords who have a large property portfolio may want to consider transferring them into a limited company as a way of minimising tax. This option is made more attractive by the prospect of corporation tax reducing to 17 per cent in the tax year 2020/21.
If you’re a buy to let landlord and are feeling the impact of the recent changes, it’s important to seek professional advice to help you decide on your next steps.