New Landlord Taxation Comes Into Effect

The cut to mortgage interest relief, and ultimately higher Landlord taxation, comes into effect today, and Let Leeds have been discussing the unfairness of the changes which will essentially hit Tenants with higher rents.

It is believed that the current government is being very unfair as to the extent of anti-Landlord changes made in a relatively short period of time.

It has been an extremely tough time for Landlords and it is difficult to think back to a time where so much new government intervention, from tighter regulation to wholesale changes in taxation has taken place in the private rental sector.

What this will mean for Landlords

Ultimately, Landlords have seen a cut in mortgage rate relief which comes into effect today, and this will hurt Landlords financially.
But this is far from being the only fundamental change the government has made within the private rented sector. In the last year the government have not only restricted mortgage rate relief, but also introduced;

• BTL Stamp Duty surcharge bought in during April 2016, exactly a year ago, increasing to 3% for Landlords and already created an additional tax for the Treasury of £1.3bn.
• Wear and Tear allowance removed on furnished properties
• New tighter mortgage and affordability regulations for new BTL mortgages have meant less new Landlords entering the market
• Further regulation within the industry – with over 80 pieces of government legislation as part of every Landlords responsibility

Finally, there is a ‘Ban on Letting Agent fees to Tenants’ currently under consultation, and if that materialises, Letting Agents income will be reduced in the region of 15%, and they will have to pass on some of the administrative costs to Landlords, resulting in higher charges for Landlords.

Will Landlords ultimately have to pass some of the pain on to those who rent?

The government has set its sights on formalising the industry to increase standards, to drive out the cowboy operators, such as slum Landlords and crooked agents, as well as bringing in institutional investment into the sector via pension companies, and ultimately to increase Taxation.

Landlords will have to pass on some of the cost to Tenants in the form of rent increases.

And with rents increasing, it is likely that rent arrears will rise too.

In the first instance, Landlords may question whether they can afford to continue paying an agent to manage the property, leading to the Landlord managing the property themselves, leading to a substandard level of service for Tenants.

When Landlords face the full brunt of this new taxation they may be forced to sell their properties or they may even be repossessed.

What does this mean for Tenants? Will families who rent take the brunt of it through raised rents?

Landlords will seek to recoup some or all of their lost income, by passing on rent increases to Tenants, this will happen gradually over the next 6 to 12 months.

Coupled by the fact that rents have already naturally increased by over 4% in Yorkshire during the previous 12 months, much higher than inflation, Tenants will really feel the pinch.

The problem at the minute is a real shortage of quality rental property. And some of the governments new polices really haven’t helped one bit.

Luke Gidney, MD of Let Leeds states ‘The new government measures mean that Landlords now pay an additional 3% in stamp duty when they purchase a buy to let property. The result being, that since this was introduced in April 2016, we have seen less Landlords buying new properties, and ultimately less property available for Tenants to rent, and this shortage of quality rental stock in Yorkshire, is driving up rents.’

‘What Tenants need the government to do more than anything is help increase the supply of properties to rent, but we feel the Government’s new policies are doing the opposite.’

It’s estimated almost 25% of Landlords are expected to stop increasing their portfolios as a result and some plan to sell some of their properties. Taking into account that Yorkshire is facing a severe housing shortage, if the supply of rental stock falls any lower relative to demand then we could be facing a frightening crisis.

Higher demand will further inflate rents, and Tenants will be the ones who ultimately suffer.

Some critics have said Landlords are facing a “doomsday scenario” – is that over-egging the situation?

Having spoken to a number of Landlords, there are certainly some real worries, with a number of Landlords now seeking to sell their property. Whilst the rental industry does offer an excellent return compared to other similar investments, there are many Landlords who are extremely worried about this situation which in unravelling.

Luke Gidney, MD of Let Leeds said ‘We feel Landlords must be clever about where they invest and what types of properties they invest in to make their investment worthwhile. We have seen a lot of new investment into HMO properties and professional house shares where Landlords enjoy higher yields. In fact, LS6 was recently found to be the highest yielding postcode in the whole of the UK and in the last 6 months we have seen lots of new investment in Leeds from investors who live and usually invest in the south of England.’

Landlords and property investors will now have to be careful about where they invest, and those with poorer investments will need to sell their properties. Landlords don’t actually want to put their rents up, especially when they have good Tenants in situ. All Landlords really care about is good long term Tenants in their properties.

Luke Gidney, MD of Let Leeds commented ‘The last decade has seen an extremely strong and stable environment for the rental sector, with long term low mortgage rates, huge rental demand, low void periods and low arrears rates, and we hope that the government’s new policies won’t jeopardise this.’

Luke Gidney is founder of Letting Agency Let Leeds, www.let-leeds.com

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