A perfect storm of Government changes has been brewing for buy-to-let investors over the past year. The Government’s ‘crackdown’ on private landlords has already begun to drive some away from the sector and has limited money-making potential for others.
Investors are still adjusting to the three percentage point stamp duty surcharge for “additional properties”, applying from April 2016.
The removal of tax relief on mortgage interest for higher-rate taxpayers, having only just started from this April, poses a great threat over a coming years.
On top of that are tighter rules governing lending to larger-scale investors, which come into play tomorrow. Any attempt to control rents would likely crush returns further and make it even harder to obtain finance, landlords claim.
Labour leader Jeremy Corbyn stoked the fires even further at the party’s conference in Brighton last week, hinting the party would bring back rent controls if it came to power.
The bulk of the Government’s changes hit only those operating privately, with limited companies largely unaffected. But it has created a myriad questions for many landlords, from those with one solitary rental property, up to those with a sprawling empire of buy to lets. Several have outlined their problems to Telegraph Money.
‘Tax relief changes will cost me £20,000 a year’
Robert Hughes, 52, has invested in property since 1994. He has a varied portfolio comprising 14 residential properties in Surrey, Berkshire, London and the Cotswolds; three penthouse flats in the Estonian capital Tallinn; 42 acres of UK farmland and four garage lock-ups. He values the total at £9m.
He said the premise of his business was to treat tenants well – one has been renting from him for 22 years – and rent rises have been rare. But he worries his profits will be severely reduced when he can no longer deduct mortgage interest before calculating tax.
“It’s going to cost me between £15,000 and £20,000 a year,” said Mr Hughes. “And in these circumstances your choices are pretty limited: you have to sell property or reduce your borrowing.
“You could put the entire portfolio into a limited company but then you would have to pay capital gains tax and stamp duty.
“Personally I’ve minimised rent rises because interest rates are so low and I believe in tenant retention. Asking a tenant whether they will pay more rent is something you never want to do. Having said that, if I’m refinancing there’s going to be pressure to put rents up simply to increase the yield.”