The issue of costs that are the responsibility of the tenant?16:06 PM, 30th July 2019
About 3 weeks ago 50
The discussions revolved around a number of key issues impacting the BTL market and a common thread that kept appearing was the need for landlords to get good quality tax advice. This article covers the first of a series of 4 discussions around today’s BTL market.
Withdrawal of Interest relief
Up until 2016/17 tax year landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability. From 6 April 2020, tax relief will be restricted to the basic rate of income tax. The table below shows how this will impact on a higher-rate taxpaying landlord receiving £950 rent a month and paying £600 towards their mortgage.
|Mortgage tax relief for property with £950 rent and £600 mortgage per month|
|Tax year||Proportion of mortgage interest deductible under previous system||Proportion of mortgage interest qualifying for 20% tax credit under new system||Tax bill||Post-tax and mortgage rental income|
|Prior to April 2017||100%||0%||£1,680||£2,520|
|From April 2020||0%||100%||£3,120||£1,080|
Kate: So, the impact of withdrawal of the interest relief has been, I think, quite devastating. The problem with property and with people is, it doesn’t matter even if it affects them, it changes their mindset. We know that the biggest impact that it’s had is down south, there’s been a massive drop in the number of people, taking mortgages for buy to let’s. However the cash purchases are carrying on. The problem with that is, where we have got our harshest issue, as far as stock is concerned is London and the South East. The Ministry of Housing, Communities and Local Government, stated about eighteen months ago, that 3,800 landlords are being lost to the sector every month. They may go, ‘That’s brilliant. We’re putting them all into home ownership,’ but my view is, if you’re a tenant, you’ve just lost 50,000 homes this year, and potentially another 50k the following year, and more after that, as the impact bites, up until, 2021. I think it’s been quite devastating, and I think tenants are the ones that will suffer.
Malcolm – Yes, I agree. The recent regulatory changes for the PRS as well as the tax reforms have put a lot of new entrants off from entering the BTL market and have seen the exit of a number of amateur landlords. If there’s less stock and less choice then rents will go up. It’s a simple matter of supply and demand
Kate: I think, people are waiting for the tenant fee ban, which came in on 1st June. I didn’t think agents would be able to increase their fees to landlords, because there’s so much competition, but actually, a lot of the good agents have. Landlords have accepted it. But, they’ve increased their rents as a result and again it’s the tenants that suffer.
Further articles will cover the following issues: the impact of the additional 3% stamp duty; the impact of the Prudential Regulation Authority (PRA) stress tests: Benefits of Incorporation; Forecasts and Conclusions
Kate Faulkner is one of the UK’s leading property experts. She is passionate that most of the problems in the residential property market can be solved if the media, industry and government worked together to educate consumers on how to carry out property projects.
Kate regularly features on BBC TV and radio and National Newspaper
To date Kate has written 11 property books
Malcolm Jones is the Founder and Managing Director of Brooklands Commercial Finance. Brooklands is one of the leading Property and Development Finance brokers in the UK and partners of Property118. They are directly authorised by the Financial Conduct Authority (FCA) and have access to the whole of the market. They regularly publish articles regarding the availability of finance for the UK property Market.
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