Tough Times Ahead for Buy-to-Let Landlords
Buy-to-Let has been a controversial sector of the UK residential property market for many years.
The current government has introduced a number of significant legislative changes that will affect Buy-to-Let landlords (and anyone owning a second home). Some of these changes came into effect this month and others will be introduced in the years to come.
In the summer budget the Chancellor announced firstly, reductions in mortgage interest relief from 2017 and secondly, an extra 3% on each stamp duty rate band.
As of this financial year, anyone purchasing a second home (including Buy-to-Let landlords) will have to pay the significantly increased Stamp Duty on the property that they are buying. This led to a rush to complete property sales during March of this year. However, this additional Stamp Duty surcharge is now in place and is unavoidable!
Buy-to-Let landlords need to take into account the changes to the tax regime that will begin to affect them next year. The changes will mean that Buy-to-Let landlords will no longer be able to deduct the cost of mortgage interest from their income before calculating tax. As a result Buy-to-Let landlords may well find themselves paying tax on money that they do not actually have. Clearly this will affect landlords who have high ‘loan to value’ ratios and will undoubtedly lead to some Buy-to-Let landlords exiting this market.
If these hurdles are not enough to deter would be landlords, under the Immigration Act 2014, from 1st February 2016 landlords are now required to check the immigration status of tenants and other authorised occupiers before granting a tenancy. If the landlord fails to take these steps it could result in a civil penalty of up to £3,000. If in any doubt, landlords should access a government publication entitled ‘A Short Guide for Landlords on Right to Rent’.
What effect will these changes have on the But-to-Let industry and indeed the residential market as a whole? No doubt the Chancellor is hoping to slow down the rate that properties are being bought by Buy-to-Let landlords to bring more first time buyers into the market. His opponents argue that this will be the death knell for Buy-to-Let as a credible investment option triggering rent increases, a reduction in Buy-to-Let housing stock or even wholesale selling of properties by Buy-to-Let landlords who will first have to evict their tenants, causing a slump in the property market.
Ian Oliver. PartnerBusiness, General, George Ide, News, Residential Property Conveyancing