The latest Rent Check report from Allsop, in association with the National Landlords Association (NLA), has revealed that 59% of landlords believe that recent Government announcements regarding the Private Rented Sector (PRS) – including the additional 3% stamp duty surcharge on second homes introduced in April – will damage their profitability.
On a more positive note, 40% of landlords expect rental growth over the next 6 months (up 14% year on year). Some 71% of landlords also still rate property investment as preferable to any other form of investment.
However, only 18% of landlords plan to purchase at least one property in the next year (down by 11% since last spring).
The survey, which interviewed 2,461 landlords across England and Wales, also found that 37% of landlords saw tenant demand rise over the last six months – down by 4% when compared with the previous six months.
Despite the government changes, in what some believe is a pointed and unfair attack on landlords and the PRS, only 3% of landlords have had to lower their rents across their portfolio in the last 12 months.
In many cases, additional stamp duty costs are being handed on by landlords to tenants in the form of higher rents. This has been a frequent criticism of the extra 3% stamp duty surcharge – instead of punishing landlords/buy-to-let investors and making it easier for first-time buyers to get on the ladder, it actually punishes tenants.
In the Government’s efforts to get tough on buy-to-let lending, they have intervened in the PRS much more than many expected when the Conservatives won a surprise election victory last May.
As well as the stamp duty changes, landlords and investors will also be hit by new mortgage legislation in 2017.
Currently, if you’re a landlord in the highest tax bracket you can claim tax relief on your buy-to-let mortgage at that rate (40%).
Under the new rules, which will be phased in from 2017 and fully implemented by April 2020, landlords will no longer be able to deduct mortgage interest costs from their taxable profits.
Instead, the mortgage tax relief will only be at the basic rate of income tax (20%), which could have a serious impact on many landlords’ net income.
As the latest Rent Check study reveals, 45% of landlords are higher rate income tax payers, so a significant number will be affected by these new changes.
To help protect their own financial position, and offset any losses to profitability, many landlords are likely to increase rents or restructure their business as a limited company (5% of landlords have already done that, 41% are considering doing so).
They may also introduce more frequent rent reviews for current tenants or decide to change management strategy.
Self-management would be one, cheaper, option, but the landlord would then be responsible for all aspects of letting out a property and the stress and workload that comes with it.
Interestingly, the Rent Check found that 27% of landlords now consider an online letting agent to be a more attractive choice than a traditional managing agent, while 31% would now ponder using an online letting agent.
The report states: “Through experience of implementing our own ‘virtual agency’ management & letting product, it would not surprise us if the preference for online lettings grows in the coming years.”
“A hybrid model of providing expert advice by technological advances, allows for innovative management and letting solutions, particularly for investors offering build-to-rent properties.”