More landlords ‘to quit sector as mortgage relief changes start to bite and profit becomes elusive’

The number of landlords planning to sell some of their buy-to-let properties has hit its highest level for a decade, it has been claimed.

A fifth of landlords said they would offload properties this year as the mortgage interest relief changes start to hit, research by a landlord body suggests.

Restrictions to mortgage interest relief started in April 2017 and analysis of its membership by the National Landlords Association (NLA) claims 20% now plan to reduce the size of their portfolio.

It comes as the membership body commissioned research by Capital Economics to look at the impact of the scaling back of mortgage interest relief, warning that landlords will face paying £850 more in tax on average once the policy is fully implemented in 2020.

This is based on a typical £122,000 buy-to-let mortgage with a 3.5% interest rate, so the losses could be higher if pricing rises.

The report suggests landlords could exit or de-leverage their portfolio but will raise rents first, which it says will be bad for the economy as it will reduce tenant spending power. A flood of new homes on the sales market will also dampen house prices.

Instead, the report recommends the Government reviews the withdrawal of mortgage interest relief and also considers capital gains tax exemptions such as where landlords sell a property to a tenant.

Other suggestions include support for landlords to move properties into a corporate structure where they would retain the right to the relief, and the creation of a government-backed investment vehicle to allow the sale of properties into a managed fund to ensure quality stock is left on the market.

Richard Lambert, NLA chief executive, said: “More and more people are relying on this sector for a home, so it is vital that landlords not only provide a high standard of accommodation, but are incentivised to do so by the prospects of a reasonable return on investment.

“It is our view that these policies are undermining the viability of many landlords’ businesses and removing the incentives to invest in residential property for business purposes.”

Meanwhile, Rightmove also says that landlords may start reviewing their portfolios as the withdrawal of mortgage interest relief begins to take effect, making it harder for landlords to profit from their investments.

It also reports that asking rents outside London increased at their slowest rate – by 0.7% – in three years during 2017.

In London, asking rents ended the year up 1.2% annually to £1,930.

Miles Shipside, director and housing market analyst, said: “Nationally rents have been holding pretty steady over 2017, retaining the 3% plus rises seen in both 2015 and 2016, and adding a more modest 0.7% in the past 12 months.

“Increasingly stretched tenant affordability, and the surge of buy-to-let property supply beating the Stamp Duty tax hike deadline, have acted together to mute landlord pricing power. In contrast, after a few years of falling rents in London they’re back on the up again, due to a combination of tightening stock available to rent and strong demand.

“While the 2017/2018 tax year will see the start of the Government’s changes to tax relief on buy-to-let mortgages, we don’t think this first phase will have that much of an effect on many landlords’ portfolio decisions until another year down the line.

“From speaking to some landlords they’re unlikely to make any decisions to sell up until they see in real-time how much of an impact it has on their finances, with many choosing to take a wait and see view rather than looking at short-term gains or losses.

“However, agents report that there are some highly-geared landlords with large loans looking to reduce their exposure to loss of tax relief by cashing in and selling some properties.”

https://www.landlords.org.uk/sites/default/files/2017-11/NLA%20REPORT%20taxing%20homes%20pages.pdf

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10 Comments

  1. 70GJ

    I anticipate that 20% of Landlords will exit the market over the next two or three years. When the reality of section 24 hits home and they see that capital values are no longer increasing they wil cash in. This will put further downward pressure on capital values and will accelerate the decline. What happens to all the tenants I don’t know?

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    1. Barry20

      ,………. Tenants will be made homeless just this Government intends (the Govt cannot claim this outcome has not been forecasted, as they’ve ignored all the advice of industry experts of the consequences of their policies).

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  2. NWood95

    I don’t know what George Osborne’s reasons were for these punishing tax changes on the private rented sector, it was interesting Legal and General launched a huge rent to buy scheme shortly afterwards.

    I built my business up from scratch in 1996 and we manage around 420 residential homes in Calderdale. Since this announcement, as tenanrts vacate, landlords are wanting sales valuations. Our stock is now 388 – the first time it has decreased by this margin since 1996.

    We sold 13 BTL Properties Oct-Dec 2017. We have been instructed to sell 3 more this year so far.

    Watch this space.

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    1. GlennAckroyd

      I can vouch for that. I own over 100 in Calderdale. I plan to sell 20 in the next 2 years. Some have already been sold.

      My focus will be property development, commercial and serviced accommodation.

      The net impact on a macro level will be;

      – Rents will rise

      – Homelessness / Social Housing waiting lists will increase

      – The cost to councils of emergency housing will increase

      – Tax revenue will fall – There is no CGT, increased Stamp duty or income tax on residential homes

      – Letting agents will have reduced income/reduced -re-sales values/multiples.

      The days of valuing letting agents at 1.5-1.8x multiple of turnover are over.

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      1. P-Daddy

        Between you and NWood95, it doesn’t appear that there are any open market houses left in Calderdale #LordsofCalderdale 🙂

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    2. RosBeck73

      It would be interesting to know who bought the properties – other landlords (and whether incorporated or not) or owner-occupiers  (and whether FTBs or not).

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    3. markbrev

      Agreed. We have had two single property landlords instruct us to sell theirs, another multi-prop landlord instruct us to sell their entire (7) portfolio as the tenancies come up for renewal, yet another landlord is shrinking her portfolio by 5 (her biggest margin properties). With 127 under management, to lose over 10% of your stock through no fault of your own and at the hands of a conservative government, is sickening.

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  3. The_Maluka

    Now is the time for soon to be ex-landlords to buy shares in budget hotels.

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  4. 70GJ

    Once the landlords have stopped buying rental property estate agents will lose the easy straight forward sales and be back to keeping chains together. No fun.

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  5. Woodentop

    We are seeing a trend over the last two years growing … some landlords penny pinch even more, some landlords are selling up, some landlords, if not all complain it is or perceived to be too much Hassel to be a landlord. The capital return where there is no incumbent finance is more and more inviting to what we call part time landlords who are loosing the will to be in the market. The proposed fee ban has escalated concerns over rogue tenants slipping through and higher costs for landlords, rents rising that for many tenants may not be sustainable and if labour get their way with 3 year tenancy etc … end of private landlords?

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