Landlords brace for tax and mortgage change as new PRA regulations bite

Landlords are bracing themselves for more tax and mortgage changes in the coming months, as new regulations come into force.

The changes are the latest in a series of attempts by the Bank of England’s Prudential Regulation Authority (PRA) to cool the buy-to-let market, following measures introduced earlier this year. This upcoming second phase of PRA rules will be implemented on 1st October 2017 and will tighten lending criteria for buy-to-let investors, making it harder to obtain finance.

The National Landlord Association’s most recent Quarterly Landlord Panel shows that landlords are already finding it harder to arrange mortgages, with 43 per cent saying the process of obtaining finance has become more difficult since the beginning of the year. Furthermore, more than half (53 per cent) of landlords report that they have had to provide additional evidence to support recent mortgage applications, including tax returns, cash flow forecasts, and business plans.

Chris Norris, Head of Policy at the National Landlords (NLA), says: “Since the PRA regulations were introduced in January, the marketplace is looking considerably more complex. It was always likely that lenders would start to demand more evidence from applicants, and landlords are already feeling they have to go further to prove that they can afford finance. Changes to buy-to-let taxation will eat away at many landlords’ profits and make it more challenging for them to manage their businesses.”

Now, the NLA is urging any landlords thinking about re-mortgaging not to wait any longer.

OneSavings Bank predicts a boost in lending later this year, as landlords strive to complete deals ahead of the PRA’s upcoming changes to portfolio lending rules.

The specialist lending group, which includes the Kent Reliance and InterBay brands, has announced its new lending criteria for portfolio landlords to help brokers prepare early for October. The firm will now require portfolio landlords with four or more mortgaged properties to provide a business plan, assets and liabilities statement and cash flow statement in support of any mortgage application.

Adrian Moloney, Sales Director at OneSavings Bank, said: “Brokers have had to move quickly to update their advice following a raft of tax and regulatory changes to the buy to let sector, and will need to do so again once the upcoming portfolio landlord changes land in October…. OSB will keep things simple for brokers. We’ve always welcomed portfolio landlords and the changes here cement our position as the lender of choice for these borrowers. We’ve chosen to announce our criteria well ahead of the October deadline, to help brokers prepare for the changes in good time so they can feel confident when preparing clients to submit a portfolio application.”

The latest figures from the Council of Mortgage Lenders shows that buy-to-let remortgage activity has been growing earlier this year, but is now falling, as April’s tax changes weigh on activity.


Landlord optimism remains steady as tax changes take effect

10th April 2017

Landlords are optimistic about the future of the private rented sector, as buy-to-let investors increasingly understand and brace themselves for the new tax changes.

The Government’s reduction in buy-to-let mortgage interest tax relief, announced in 2015, came into effect last week, but while the effects will be significant by the time it is fully phased in by 2022, 78 per cent of landlords now say they have an understanding of its implications, according to Paragon Mortgages, up from 71 per cent in Q4 2016.

Read: Should landlords incorporate to avoid the new Tenant Tax?

This increase in understanding is paired with a smaller percentage of landlords saying they do not understand the implications (7 per cent, down from 11 per centin Q4 2016) or they require more information (13 per cent, down from 18 per cent), and is a further indication that landlords are preparing for the impact of the changes.

Landlord optimism was stable in Q1 2017, with the overall average rating of prospects for the PRS over the next 12 months now at 6.7. This maintains a modest upward trend since Q1 2016 and suggests confidence is returning amongst landlords following a turbulent 18 months, as they gain greater understanding of the ressures they are likely to face and developing strategies to mitigate at least some of the impact.

For more, see How to Beat the Buy-to-Let Tax Changes.


Landlords must “go back to basics” to beat buy-to-let tax change

20th March 2017

Landlords must “go back to basics”, according to experts, to beat the buy-to-let tax change next month.

Landlords have already swallowed a 3 per cent stamp duty surcharge on second homes that was introduced in April 2016. Now, from April 2017, they’ll see the tax relief from their finance costs phased out, with the percentage of these costs deductible from rental income dropping by 25 per cent per year until it reaches zero in the 2020 to 2021 financial year.

The restricted finance costs include interest on mortgages, loans, and overdrafts, including borrowing used to buy furnishings, as well as to cover the purchase cost of the property. For those already in possession of one or more buy-to-let properties purchased on finance, the change means a gradual reduction in profitability over the coming four years.

As a result, the National Landlord’s Association has estimated that some 440,000 landlords will find themselves pushed up a tax bracket.

What can landlords do?

“The simple answer is to buy with cash and thus avoid the tax relief deductions entirely,” says Jean Liggett, CEO of property investment consultancy Properties of the World,. “However, that’s not always an ideal solution for some investors. For those still using mortgage or other finance to purchase a buy-to-let property, the best plan is to buy as if it’s 2021.

“Calculate the property’s yield based on the end of the phasing in period in order to ensure that it will still be a profitable venture once the tax changes are fully implemented. Work out now whether the changes will push you up a tax bracket and make your investment decision with full knowledge of that fact.”

Purchasing lower cost properties that are more achievable as cash purchases is one strategy, while opting for a city flagged as a hotspot is another good approach. HSBC has identified Manchester as one of the UK’s top four buy-to-let hotspots, while Jones Lang LaSalle has projected that house prices there will rise by 4.5 per cent per year for the next five years.

“Really it’s about going back to basics,” adds Liggett. “Buy cheap and buy smart.”

“Investors need to focus on buying to NET profits by seeking out developments with strong yields. The right properties can still produce healthy returns. Instead of the death of buy-to-let, we’re seeing the birth of buy-to-NET,” she concludes.

Read: How to beat the buy-to-let tax changes

Landlords try to keep rents affordable in face of rising costs

3rd March 2017

UK landlords are trying to keep rents affordable for tenants in the face of rising costs.

New figures from HomeLet show that rents rose by an average of just 0.8 per cent in February 2017 compared to the same month of 2016, well below the general rate of inflation, which is now running at 1.8 per cent.

The decline in the pace of rental price appreciation, which was 4.7 per cent as recently as June 2016, is despite the consensus among property experts that buy-to-let investors will have little option but to hike their rents this year, as they face mounting costs, brought on by a string of government rule changes and taxes. Indeed, while a survey by Homelet shows that half of landlords expect to have to raise rents, almost a third of those are planning to defer rises until 2018.

Landlords now face a dilemma: on one hand, factors such as April’s impending tax changes threaten to raise costs for many. On the other, they are acutely conscious of the need to ensure rents are affordable for tenants.

Commenting on the research, HomeLet’s Chief Executive Officer, Martin Totty says: “Our research again demonstrates that the vast majority of landlords have positive working relationships with their tenants. In recent months, we have seen landlords treading very carefully with rental price rises, amid concerns about tenants’ ability to pay. With more than one in five landlords (21 per cent) blaming an increase in their tax liability for raising rents, it remains to be seen if this can sustain. Landlords will hope the Chancellor does not make it harder for them to continue supporting their tenants in this way, with further changes to the tax system or legislation, as he prepares to unveil his Budget on the 8th March.”


Landlords call for rethink of buy-to-let tax following stamp duty windfall

2nd February 2017

Landlords are calling for a rethink of the UK’s buy-to-let tax changes, after the stamp duty surcharge introduced last year has raised over a billion pounds.

The stamp duty hike of 3 per cent for additional property purchases, including second homes and buy-to-let investments, was introduced in April 2016. The levy shaped the UK housing market throughout last year, with people bringing transactions forward to beat the April deadline, causing a slowdown in sales for the rest of the year.

It is just one part of a wave of new measures introduced by the government designed to clamp down on the UK buy-to-let sector, including a ban on letting agents fees and, most dramatic of all, the phasing out of mortgage interest tax relief. The latter will force landlords to pay tax on revenue rather than profit, forcing many up a tax bracket and leaving lots of those with no option but to raise rents to cover costs.

The stamp duty surcharge was forecast to bring in around £630 million in income during its first year. In just nine months, though, the tax has already generated £1.19 billion. As a result, the Residential Landlords Association is renewing its calls for a rethink on the upcoming tax change, which will begin to be implemented in April 2017.

One RLA survey found that six in 10 landlords are considering reducing their investment in rental properties because of the change, while two-thirds feel it will put upwards pressure on rents. At the very least, the RLA is calling for a pause on the tax change to enable a better assessment of the current market and the policy’s impact.

“In raising nearly twice as much in just nine months as the tax was predicted to make in one year this stamp duty windfall gives the Government a chance to back the rental market and support the development of new homes which we desperately need,” says RLA Policy Director, David Smith.

“At no stage has evidence been published to support the assertion that landlords are taxed more favourably than homeowners, or that they are squeezing first time buyers out of the market. Assessments by the Institute for Fiscal Studies and the London Schools of Economics contradict the Treasury’s position completely.”

“It is also nonsense for HMRC to suggest that one in five landlords will be affected by the mortgage interest changes, when what matters is the number of properties affected,” he adds.


Rent rises are slowing down… but not for much longer

30th November 2016

Rent rises are slowing in the UK, as tenant activity enters its traditionally quiet season. But rents will not stay low for much longer, warn experts.

The number of agents witnessing rent hikes for tenants was at the lowest level since December 2015, with just one in five (18 per cent) agents reporting increase in October. This is down 6 per cent from September when 24 per cent of agents saw rent increases, and fourteen per cent from March when a record 32 per cent of agents saw price rises.

“In terms of supply and demand, this month’s findings reflect seasonal expectations and show the market is slowing in the final quarter. With fewer properties available to rent and a drop in the number of prospective tenants registering interest, tenants tend to stay in their current properties until the New Year arrives,” says David Cox, Managing Director, Association of Residential Letting Agents (ARLA).

However, the buy-to-let sector is facing a number of new measures that mean the slowdown will not last long.

Landlords are still reeling after the 3 per cent stamp duty surcharge earlier this year and the forthcoming plans to prevent landlords deducting mortgage costs from rental income and limiting tax relief on mortgage interest payments.

“The neglected lettings industry has a bulging balloon of tenants who are chasing too few rental properties and by continually kicking landlords, this situation is not going to improve,” says James Davis, CEO and founder of

Indeed, last week, the Autumn Statement announced that letting agent fees will eventually be banned in the UK, with many now expecting letting agents to pass on their charges to landlords, thereby impacting their profitability once more.

A poll undertaken by online letting agent has revealed that 40 per cent of landlords plan to increase rents if they are left to pick up the cost of tenant fees, reveals a survey by Upad. Only a third of the respondents questioned said that they would definitely not raise their rents, meaning that potentially two thirds of tenants, or up to 2.6 million renters, could face a permanent increase in rent as a direct result of the recent announcement.

“Instead of punishing landlords, we need to find ways to increase the supply of quality and affordable rental property to help house the millions of people who need it. Frustratingly for everyone involved, this research suggests that landlords will be left with no choice but to further increase rent,” adds Davis.

“Just when rents were starting to stabilise, the Chancellor has thrown the biggest curve ball, meaning that rents will unpreventably rise when the tax changes and letting fees ban come into effect,” comments Cox.

Read more: Should landlords incorporate to avoid the new Tenant Tax?