Landlords contribute over £15bn to the UK economy, according to new research, but that figure is set to decline, due to government tax changes.
As their tax burden increases, over a third of landlords are looking to cut their annual spending, a move that will hit the tradesmen and professionals that support the property industry, according to latest research by Kent Reliance.
Landlords currently contribute £15.9bn per year to the British economy through pre-tax spending on running their portfolios, supporting thousands of jobs. This has more than doubled from an estimated £7.1bn in 2007, owing to the rapid growth of the private rented sector and climbing costs per property.
The cost of property upkeep, maintenance, and servicing is the largest outlay (£5.5bn). Landlords spend £2.0bn in service charges and ground rent, £963m on insurance, £904m on utilities, and a further £1.1bn on other associated costs of letting a property.
Spending on letting agents’ fees totals £4.7bn each year, with £644m spent on legal and accountancy fees, and £218m on administration costs. Altogether, landlords provide £5.5bn of revenue for these sectors.
John Eastgate, Sales and Marketing Director of OneSavings Bank, the parent company of Kent Reliance, comments: “Landlords may seem like an easy target for political point scoring, but they play a vital role in the economy. Not only do they house a huge proportion of the country’s workforce, bridging the housing demand and supply gap, their spending supports thousands of jobs – whether builders, cleaners, lawyers and accountants or letting agents.
“Trying to tackle the housing crisis by targeting landlords with punitive taxes is very simple and politically highly palatable, but has unintended consequences. Either it means less work for all those who support the property industry, or it means tenants will have to foot the bill for the government’s tax raid, or both.
“One side effect of the recent changes, and rising running costs, will be the professionalisation of the sector as amateur and accidental landlords leave the market. There is nothing wrong with having fewer, bigger landlords, but that alone will not help more young people get homes.”
Majority of Brits unaware of tax change for landlords
3rd April 2017
This month sees the introduction of new tax rules for buy-to-let investors in the UK, but despite their dramatic consequences for the housing market, new research from Ray Boulger, mortgage market guru, reveals that 85 per cent of Brits are unaware of them.
From April 2017, the government will be phasing out mortgage interest tax relief for landlords, effectively forcing buy-to-let investors to pay tax on their revenue, rather than their profit. Over the next three years, mortgage tax relief will be phased down from 45 per cent to 20 per cent. Landlords will then be given a 20 per cent tax credit to apply after they have paid their tax bill.
While it sounds like a technical difference, the change will have serious consequences for landlords, bumping up their tax bill and potentially forcing some into higher tax brackets. The measure follows a similar move from the government last year, which hiked stamp duty by 3 per cent for buy-to-let purchases. With letting agent fees for tenants set to be banned this year too, leaving those costs to also be passed over to landlords, buy-to-let investors will have little choice but to raise their rents to make ends meet – or, in some cases, sell up altogether.
“The headlines will read that a mass exodus of landlords will be a good thing, but the reality is more people now rely on private rented housing than ever before, and absolutely no good can come from fewer homes being available for those who need them most,” warns Richard Lambert, Chief Executive Officer at the National Landlords Association.
Indeed, according to the latest English Housing Survey, the private rented sector plays a vital role in the housing market, accounting for 20 per cent of households. Analysis of members’ property transactions by the NLA shows that the sector’s net growth (property purchases minus sales) has fallen by 63 per cent since George Osborne announced the withdrawal of mortgage interest relief in July 2015.
The proportion of existing landlords looking to buy properties in the coming year has also fallen to its lowest ever point of 16 per cent. The proportion of landlords who intend to sell property in the next year, meanwhile, has more than doubled since July 2015 – rising from seven per cent to 16 per cent.
As a result, the NLA is predicting a net reduction of property transactions by 2018, which would see the private rented sector begin to contract.
If letting agent fees are also banned outright when the government publishes its consultation, the Association of Residential Letting Agents warns that agents will need to pass the costs on to landlords. Two in five landlords (41 per cent) expect they will therefore need to pass on a portion of that inflated cost to tenants, most likely pushing rents up by £103 on average per year.
David Cox, Chief Executive, ARLA Propertymark, comments: “Our monthly Private Rented Sector report shows that since the Stamp Duty reforms came into effect last April, letting agents have seen the supply of rental stock decrease. In February, 44 per cent saw supply fall as a direct result, while only nine per cent saw it increase1. The impending letting agent fee ban will also make buy-to-let investment less attractive, as costs are passed on through inflated agents’ fees which landlords pay. A quarter (27 per cent) are expected to stop increasing their portfolios as a result and a fifth (20 per cent) plan to sell some of their properties. We’re facing a severe housing shortage at the moment, and if the supply of rental stock falls any lower relative to demand for housing, we’ll find ourselves in the midst of a real crisis.”
Buy-to-let investment can still be profitable, say experts, if landlords focus on investing in areas with the highest returns and long-term capital growth. Other options include setting up as a limited company to only pay corporation tax on their income. For more information, see our guide to beating the buy-to-let tax changes.Google+