Legislation has had an impact on the buy to let sector over the last decade. It is still a strong market to be in though and I am still getting plenty of enquires from both experienced and new landlords. This article looks at some of the changes that have taken place. 

Landlords still positive following recent and proposed legislative and tax changes

The government published its long-awaited rental reform white paper on 16 June 2022, which included measures to encourage pet ownership and scrap Section 21 evictions.

Buy-to-let landlords across the country are getting their heads around recent and proposed legislative and tax changes, but many are still positive about finding attractive returns in the long-term rental sector. However, the picture is still somewhat mixed over whether buy-to-let landlords are staying or leaving the sector right now.

Property investment 

Research looking at the mortgage market has revealed that the number of buy-to-let mortgages issued in the year to February reached 275,600 – the highest figure since 2016[1]. 

New mortgages taken out by buy-to-let landlords – either those new to the property investment world or those buying additional properties – was up to 110,000. This compares to just 75,800 taken out in the 12 months to February 2020, according to the research. 

Raised rents

But more than a third of landlords have considered selling rental properties due to the loss of the buy-to-let mortgage interest tax relief, while one in four have raised rents[2].

Landlords could previously deduct mortgage expenses from their rental income in order to help reduce their tax bill. However, this started to be phased out in 2017 before being stopped in April 2020. 

Rental properties 

Now landlords receive a tax credit, based on 20% of their mortgage interest payments, which is less generous for higher rate taxpayers, who previously received 40% tax relief on mortgage payments.

The findings reveal that 37% of landlords have considered selling rental properties as a result of the recent changes. Nearly eight in ten landlords (77%) feel the changes unfairly punish them, with the same percentage (77%) saying there should be more support for landlords, especially post-pandemic, leading to many considering selling their properties. 

Legislative changes

More than a quarter (26%) of landlords with larger portfolios (20 plus properties) have reduced their portfolios to reduce the tax impact, compared to 13% of those with between two to five properties. 

Over half (55%) of those landlords planning to sell up identified recent legislative changes, followed by forthcoming legislative alterations, such as the scrapping of Section 21 (the first step a landlord currently has to take to make a tenant leave their property).

Tax changes 

The changes, however, may also be forcing up costs for some tenants, with one in four landlords (25%) having raised rents to cover the increased tax burden. This figure jumps considerably to 58% for landlords with 20 or more properties on their books.

In recent years, there have been numerous regulatory and tax changes for landlords to deal with. The loss of the mortgage interest tax relief and other legislative changes are causing some to question whether to leave the sector altogether by selling some or even all of their properties in order to help reduce their tax burden. Rental increases are also a reality, with one in four landlords recouping losses from tenants, many of whom will be struggling with the rising cost of living.

Rental income 

The survey also reveals that the average total gross rental income is £17,200, which is up on the £15,000 calculated in 2018. More than half (56%) of landlords have a rental income of less than £20,000 and 29% bring in between £20,000 and £49,999. Landlords earning more than £50,000 from their portfolio account for 15% of the survey participants.

The government estimates that, on average, landlords earn 47% of their total income from property – an increase on the 42% recorded in 2018.

Getting ready to make your next buy-to-let move?

It’s a complex time to be a landlord. We can help you get your head around the rules when investing in buy-to-let property, managing your portfolio and looking to raise mortgage finance. For more information, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data:  [1] https://www.knightfrank.com/wealthreport

[2] Research conducted by BVA BDRC with 796 UK landlords between 5–21 December 2021