In the last couple of years, a raft of tax hikes and lending reforms have made becoming a landlord far less attractive than it once was – but is investing in property still worthwhile?
In what The Times is now calling ‘Buy to Lexit’, beleaguered landlords may be finding it increasingly difficult to turn a profit on their investment properties – and data from the Council of Mortgage Lenders (CML) suggests some are beginning to abandon the market.
If you’re a landlord, we want to hear how your portfolio has been affected – and whether you ultimately think property remains a strong investment. And if you’re a tenant or homebuyer, do you support the changes in this sector?
Here’s a reminder of some of the key reforms targeted at buy-to-let in recent years.
New stamp duty regulations that came into force in April last year saw landlords hit with a 3% surcharge when buying investment properties. This meant the stamp duty on a £200,000 home increased from £1,500 to a whopping £7,500.
Elsewhere, the tapering of mortgage interest tax relief (which will continue until 2020) and the end of the wear and tear allowance has hit landlords’ bottom line.
Energy efficiency changes
From April next year, any rented properties must have an Energy Performance Certificate with a minimum rating of ‘E’. Landlords who fail to adhere could face fines of up to £5,000.
New mortgage lending regulations for landlords with four or more buy-to-let properties were brought in at the end of September.
The changes mean that lenders will now assess every property in a landlord’s portfolio when deciding whether to offer them further finance, potentially locking some out of further purchases.
Letting fees ban
Earlier this month, the government introduced a draft bill to Parliament to ban letting agents from charging fees to tenants in England. It’s likely the burden of paying referencing and inventory fees will shift to landlords, and some may also struggle with the cap on up-front deposits.
How have landlords reacted?
Data from the CML shows that while landlords aren’t fleeing from the buy-to-let market, more people are settling their loans or selling up.
Meanwhile, separate research from the estate agency group Countrywide has shown a record percentage of buy-to-let purchases are now coming from cash buyers, as finance becomes increasingly difficult to get hold of for those with mortgaged portfolios.
Some landlords have been tempted to set up limited companies so they still get full mortgage interest tax relief. But be warned – those incorporating now face more expensive mortgages and the prospect of additional capital gains tax and stamp duty bills.