Research Indicates 47% of Landlords Are Altering Their Investment Strategy

Q. Are Landlords altering their Investment Strategy?

A. Landlords have had a rough ride in recent times. Rules surrounding buy-to-let mortgages have become more challenging, stamp duty has gone up, and now the tax changes laid out in Section 24 are coming into force, albeit gradually. It is perhaps no major surprise then to learn one body of research has found 47% of landlords have “changed their investment strategy”. The research, from Simple Landlords, focuses mainly on the Section 24 rules that will start changing from April next year.

What is Section 24?

At present, landlords can offset 75% of the interest they pay on their mortgage against the income they receive from their tenants. However, come April 2018, this will be reduced to 50%. There will be a further 25% cut in April 2019, before the relief disappears completely in April 2020. At this point, landlords will be able to claim a tax credit worth 20% instead.

While there have been several changes recently that are affecting landlords with buy-to-let properties, the research found the changes to the tax law have been most pronounced. In fact, a quarter of those questioned said they found this to be the most concerning area. While only 6% said they were leaving the buy-to-let market completely, nearly half indicated they would need to change their strategy to ensure it was still viable.

Time to make decisions based on personal circumstances

“Most landlords will be aware of the many changes they have been subjected to of late,” said Darren Pescod, CEO of The Mortgage Broker Limited. “However, since the new tax laws don’t come into effect until April 2018, it’s possible some are still weighing their options.

“The initial 25% drop in tax relief looks set to affect around one-fifth of the market when it occurs next year, in terms of the number of people that will find themselves in a higher tax bracket than they currently are. Obviously, this will become more noticeable in subsequent years as the tax relief drops further. It will be interesting to see if the 6% figure given for those looking to exit the market grows bigger as time goes on, and the changes take effect.”

Plan a strategy

Now is the time for landlords to consider their position if they have not already done so. For some, it may mean getting rid of some properties altogether. For others, making the switch to a limited company might be a better alternative.  Whichever path a landlord chooses, there will clearly be some number-crunching to be done.

The real question is whether there will be additional properties coming onto the market, sold by landlords who are either downsizing their portfolios or quitting the buy-to-let market altogether. This would free up properties for private buyers to purchase, but it might also reduce the rented housing stock available for renters to choose from.

Whatever happens, it looks set to be a bumpy few years ahead for landlords across the country.