Where Does The Budget Leave Landlords?
24th July 2015
A cursory glance at the first purely Conservative budget for many years saw some much as expected Conservative policies, although there were some interesting stand outs, not least the revelation that Buy To Let landlords are facing changes related to the allowances and reliefs they can claim against their rental income.
In essence, this means that landlords will soon only be able to claim tax relief up to the basic rate of tax; 20% rather than up to 45%.
This is being phased in “gradually” from 2017, so initially 25% of the change will apply, then 50% the next year and so forth over a 4 year period. In other words, the full force of the change will not be felt for 6 years from now.
There are also changes to the “Wear and Tear” allowances which will only be acceptable on actual costs they incur, for example when buying new goods for the property, rather than having an automatic right to claim 10% of the rent against wear and tear each year.
Whether this is “fair” or not, depends on your individual point of view and many have been quick to point out all the arguments about Buy To Let being a business and therefore mortgage interest being a legitimate business expense.
There are of course, more things to consider than just that.
Landlords are an important part of the housing sector, growing in importance given many Governments abject failure to address the supply side issues. However, it does without doubt make it more difficult for 1st Time Buyers who are often competing with landlords for the very same properties which will push up prices.
As mortgage interest relief was axed for residential buyers some time ago, it seems understandable for some to be miffed that landlords still have that advantage. The argument is that if landlords want to run a business they should therefore buy the properties in company names and do it that way.
I suspect that this could well be an option for many, with more lenders actively talking to us about this market now and wondering whether they should offer lending to limited companies. No doubt this market will grow in time.
It could also have been much worse. Limiting the tax relief to basic rate seems an ok middle ground proposal to start with, rather than anything more draconian which could have some more serious consequences. Some landlords could well lose out on potentially thousands of pounds of relief per annum, which could in turn trigger rent increases. This of course means more difficulty for those trying to save to get onto the ladder in the first place.
Some landlords do have thin margins, especially in high priced areas where yields are low and this could make a significant difference in Buy-To-Let investment and cause an exit. But then again isn’t that the very point of this?
There are other landlords who will still feel comfortable with where they are and decide it is still very much worthwhile. There are also many who think these changes are about right.
For those landlords who want to protect their position, especially in the face of potential rate increases in the future, it looks sensible to perhaps take advantage of remortgaging now onto some of the very low fixed rates available.
In fact, rates in this sector have never been so low, with products now available on a 2 year fixed basis from 2.24%, (4.5% APR) or on a 5 year fixed basis from 3.09%, (5.1% APR) so it is worth investigating before the best rates disappear.
Whether moves such as this actually help or hinder the market remains to be seen, but what we do know is we need a healthy Private Rented Sector just as much as we need a healthy Private Residential Sector.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage
Your property may be repossessed if you do not keep up repayments on your mortgage.
A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.
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Andrew Montlake, Director and Spokesperson for Coreco, gives his honest and forthright views on the mortgage market, economy and all things property related. Monty was voted "Mortgage Personality of the year 2008", "Best Press Spokesperson" in 2011 and is the current holder of the British Mortgage Awards “Best Marketeer” title. Expect expert analysis, delivered in a down to earth style with a side helping of exuberance.