The Future of Buy To Let
There have been various attacks on landlords in recent years. So we at QBP have prepared this article of where we feel the rental market is heading.
- Tax Relief Changes
The changes in mortgage relief and the ending of the wear and tear tax relief means landlords now pay far more income tax on their property earnings. Indeed in certain situations it could mean landlords could pay more than 100% tax i.e. more tax than actual profit received.
- Stamp Duty
Also stamp duty has changed for landlords and has been passed by the government on a populist logic that does not really make sense. Now landlords have to pay an additional 3% compared to buyers of single homes on the basis that landlords had an unfair advantage in the property market when rates were equal. For us this argument never stacked up, indeed landlords usually had to pay more costs than normal buyers as their mortgages came with higher rates.
- Rights of Tenants
The government has also looked to change the rights and obligations between landlords and tenants. The deposit protection scheme and HMO licensing scheme have increased tenants’ rights (especially if the landlord forgets to do it or does not comply perfectly) all increasing the burdens on landlords.
- Ending of no default evictions
Further legislation is expected to come in to ban non default evictions. Unlike various other countries, the regime to evict a tenant in the UK presently is very much in the tenants favour and stacked against landlords. It can take many months (sometimes years) to evict a problem tenant if they play the system, forcing landlords to go to court. This process is only going to get harder in the future with the ending of no default evictions.
- Build to Let
A current trend is build to let. Large companies and funds especially from the UK, Germany and the USA have built or are building large developments in the UK which are solely for the rental market. The companies agree for the purposes of planning permission that the flats will not be sold for a certain period e.g. 15 years. The developments which are mainly springing up in city centres consist of many hundreds of apartments.
They will operate under normal fiscal and accountancy rules as for any company in the UK. Therefore they may have a tax advantage compared to the amateur buy to let landlord in the UK.
- The Future
Almost certainly, the number of buy to let landlords is reducing and will continue to reduce. Indeed it has been estimated that 120,000 landlords have left the market in recent years.
Governments do often try to target a particular section of society to blame for all ills. This deflects attention away from them but does feed down to the general population. In the past we have seen “fat cats”, bankers and professional footballers all be scapegoats. Now it is landlords, although in respect of earnings they are not in the same league. Therefore, in addition to all the attacks highlighted above, a general feeling of disillusionment and why do I bother, may also no doubt lead to more leaving the market.
In tandem with this, the trend for build to let will continue. Therefore in 20 years time, it would seem your average landlord will not be your Mrs Smith who lives down the road, but more likely to be a US hedge fund.