Changes and Challenges for Landlords
Ying Tan is founder and director of The Buy to Let Business. In this guest blog post he discusses the recent and future changes facing landlords.
If you’re a landlord then take a few moments to give yourself a pat on the back. You deserve it. It’s been a tumultuous few years to say the least and you’ve survived it, so well done!
In the last two years you’ve had to deal with a whole host of changes and indeed the buy to let landscape is a very different place today.
Unless you’ve buried your head in the sand for the last couple of years (not a good coping mechanism!) you’ll know that the buy to let market is now subject to a new tax relief system. Landlords must now pay tax on rental income, not just profit, and tax relief is set at the basic rate of income tax, even for higher rate taxpayers.
When it was announced in George Osborne’s Summer Budget in 2015 there was a market outcry. It was the clearest example so far of the government’s assault on the private rental sector and many hoped it wouldn’t go ahead, but go ahead it did. Indeed, whilst the government did perform a U-turn in the 2017 Budget (or just after it), it wasn’t the U-turn many of us had been wishing for. On April 6th the new tax system came into play.
It’s the latest challenge for the market to navigate. Back in 2015 the government announced plans to impose a 3% surcharge on Stamp Duty for second homes and buy to let properties – a surcharge which came into play on April 1 2016. And in January of this year, of course, the first round of Prudential Regulation Authority rules came into effect. The new rules mean lenders have to implement tougher stress tests on borrowers and many have hiked their rental coverage calculations up to 145%. This has priced some landlords out of the market and made certain areas off-limits for others.
The second round of PRA changes will come into play in September and will see portfolio landlords hit hard, with lenders requiring information on all of the properties in a landlord’s portfolio when seeking finance to buy a new one.
Meanwhile, of course, there is the often ignored changes to the wear and tear tax allowance, with landlords no longer automatically entitled to a 10% tax break for wear and tear of their properties.
Needless to say it’s been a bumpy ride. But despite the doomsday headlines of the national press, particularly during the last year, the market has actually come out OK. The latest research from Paragon Mortgages shows landlord confidence is increasing. The market seems to have got to grips with the tax changes with landlords changing their business models in advance and exploring the limited company route or making use of their spouse’s unused tax allowance.
Indeed, it seems the changes have made landlords more resilient, more adaptable and, importantly, more prepared. We’re seeing more landlords seeking expert advice. Landlords want to speak to financial advisers and tax specialists. They want to know their position and understand all of the implications. As has happened several times in the past the landlord market has weathered the storm and come out stronger.
Ying Tan is founder and director of The Buy to Let Business – a specialist buy to let brokerage based in Camberley, Surrey. Ying is a qualified accountant with a background in investment banking having worked for UBS, Deutsche Bank and Goldman Sachs. He is dedicated to combining unusually high levels of customer service and understanding, with building satisfying and rewarding careers for the people he works with.
Over the last twenty years, he has built a substantial property portfolio and currently holds properties in both central London and the Home Counties. Ying has also conducted training and seminar courses, sharing his wealth of knowledge and contributing towards the success of numerous property entrepreneurs and investors.
Tel.: 0800 170 1888