Kate Faulkner discusses topical BTL issues with Brooklands Commercial Finance

Kate Faulkner discusses topical BTL issues with Brooklands Commercial Finance

9:15 AM, 20th July 2019, About 3 years ago 4

Text Size

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
2017-18 75% 25% £2,040 £2,160
2018-19 50% 50% £2,400 £1,800
2019-20 25% 75% £2,760 £1,440
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

  • Rents are now increasing at a faster rate than house prices
  • Average yields have now risen to 4.5%
  • Yields in London are now the highest for 4 years

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.

Contact Malcolm Jones

Commercial Finance, Development Funding and Bridging Finance
  • How can I help you?


Mick Roberts View Profile

15:40 PM, 26th July 2019, About 3 years ago

Excuse my delay, behind with emails.

I get the same from the Labour trolls, Oh good that Landlords have to sell, more buyers can buy.
But they can never answer me when I say 97% of my tenants cannot afford to buy, where they gonna' live?
And they say Sell 'em yours at a discount, to which I say I have offered this to which they laugh & say No Landlord would do that.
I think it's the least I can do if they've lived there 20 years & paid £120k rent.

Old Mrs Landlord

9:43 AM, 27th July 2019, About 3 years ago

Reply to the comment left by Mick Roberts at 26/07/2019 - 15:40
The argument I hear is that if enough landlords are forced to sell, property prices will drop to the level where all the best tenants will be able to afford to buy, leaving remaining landlords no choice but to accept more risky tenants and to reduce rents. This completely ignores the fact that in a falling property market lenders reduce their mortgage offers to allow for possible future falls, and/or raise their mortgage interest rates, demand increased deposits or even stop lending altogther.

Mick Roberts View Profile

12:53 PM, 27th July 2019, About 3 years ago

Reply to the comment left by Old Mrs Landlord at 27/07/2019 - 09:43
And when Landlords do sell now, if private person doesn't buy, the new Landlord then picks the squeaky clean tenant.

Old Mrs Landlord

13:15 PM, 27th July 2019, About 3 years ago

Reply to the comment left by Mick Roberts at 27/07/2019 - 12:53And the incorporated landlords with hundreds of properties, unaffected by Section 24 loss of mortgage relief, will get bigger and bigger and the individual landlords with a few properties to supplement their pension will be squeezed out and tenants will lose the personal relationship they enjoyed with their small local landlord. I'm not saying amateurs and accidental landlords should not be made fully compliant, but that the government's efforts to "professionalise" the sector are not entirely without consequences and wide-ranging knock-on effects, whether intended or deliberate. One obvious consequence will be the side-lining of tenancy applicants who are not, as you put it, "squeaky clean" and the resultant homelessness.

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now