The Future of Buy to Let
It seems impossible to open a newspaper or internet news feed without seeing a case study of the impacts of the proposed tax changes on landlords. Indeed we are seemingly being bombarded by information detailing that we will be running our portfolios at a loss once Clause 24 comes into effect, meaning that landlords can only claim a 20% rebate against their mortgage interest costs. We are also due to be penalised with Stamp Duty changes on any future purchases we make or if we seek to transfer personal property to a limited company.
In many respects, the future of our business model looks bleak.
Let us set aside the fact that it appears grossly unfair that property owners will be treated very differently to other business owners and instead look at how the buy-to-let
(BTL) landscape may change, and whether we will be able to weather the storm.
One of the leading Landlord Associations reports that confidence in landlords’ business expectations has fallen by a third over the past year to an all-time low of 43%. It appears that the level of confidence in our sector is 5% lower than during the recession.
If information I have read is true, then we a re likely to see over 500,000 rental properties be offered on the sales market this year as a reported 19% of landlords sell up. The following three years until Clause 24 is fully implemented could see a further 100,000 BTL properties each year being sold.
It has often been said that one should watch what the masses are doing and then do the opposite – and it seems to me that there could be a real opportunity here.A large volume of property could come onto the market as some highly geared landlords believe that their property holdings will no longer be viable. That said, the current level
A similar scheme was introduced in Ireland and anecdotal reports suggest that resultant rents increased by around a third. So if your average £750 rent went up to £975 then this would certainly go some way to paying the additional tax you may be subjected to.
Not only that but you may further benefit from the impact of such rent increases on the capital values of property. If the sales market would still support the same yield levels on investment property then you could see a significant capital appreciation in your property holdings.
Landlords who can stay the course could see increasing returns which may more than offset additional taxation.
They may also see a sharp reduction in the void periods that they would customarily experience. Surely the resultant supply in rental property will mean your tenants are less likely to find a property nicer than the one they are in.
With fewer properties being offered in the market place you may be able to secure a better quality tenant than you may have otherwise entertained.
Furthermore it is suggested that over a quarter of landlords are not planning on increasing their portfolios. This reduction in demand from buyers could mean a stabilisation of pricing enabling active investors to increase their portfolios without having to pay inflated prices. Particularly given that not all of the property placed on the market will be suited to an owner-occupier buyer. Blocks of flats, commercial to residential conversion opportunities and ‘job lot’ landlord portfolios are not going to appeal to a first time buyer (FTB)! Nor generally are properties sold via auction.
A recent report from a leading economist stated that the general slowing in the economy could mean that interest rates stay at their historic lows for another two years.
So in short, if we can buy for less, rent for more, attract better quality tenants, continue to procure our finance at favourable rates and potentially see an increase in the value of our property portfolio then surely there is more than a glimmer of hope for our business model?
Whilst I disagree with this proposed ‘turnover tax’ I think that the BTL business will still continue to flourish. For me the real risk exists if, following the changes, the Chancellor is mistaken and the market will still not allow significant numbers of FTBs to buy and yet the projected massive reduction in rented property and therefore inevitable rise in rental costs means that they cannot afford to rent either.Back