2017 was a difficult year for landlords, with the roll out of Section 24 cuts to mortgage interest tax relief starting, property prices struggling across the country and even falling in some areas and a series of government reforms to the sector including new energy efficiency standards, a cap on tenants’ deposits and regional licensing schemes.
With many landlords still processing those developments, it’s worth looking ahead and considering the possible developments in the rental market that might affect landlords’ finances in 2018.
Section 24 roll out continues.
The gradual reduction and eventual elimination of mortgage interest tax relief began in 2017 and is set to continue through 2018 and beyond until 2020.
Currently, landlords can offset 75% of their mortgage interest against their tax bill, but this will be cut again on April 6th of this year to 50%. The 50% of mortgage interest that can’t be offset will be taxed at the basic rate, leading to higher tax bills for buy to let investors.
Mortgages could become more expensive.
Many lenders recently cut mortgage rates on buy to let deals, but this isn’t likely to last long as two major sources of finding for buy to let investors are set to close.
The Funding for Lending Scheme, which was set up in 2012 to help the UK recover from the recession by encouraging banks to lend, and the Term Funding Scheme, which lends money to the banks at the Bank of England’s base rate, are both due to close at the end of this month and next month respectively.
Moneyfacts already reported recently on a slight rise in the cost of borrowing for buy to let homebuyers.
Falling yields on rental properties.
According to data published by Your Move at the end of last year, the average rental yield across England and Wales was 4.4% in October, down from 4.8% the same time in 2016.
With house prices struggling in many areas and even falling in some parts of the country, landlords could be looking at smaller profits on their investments.
The Stamp Duty surcharge.
More than a year and a half on from the introduction of the controversial 3% hike in Stamp Duty Land Tax on second homes, the tax continues to weigh on landlords’ finances and the rental sector.
Following the introduction of the surcharge, a landlord purchasing a home for £200,000 needs to pay £7,500 in Stamp Duty, up from only £1,500 before the change was introduced.
Stricter affordability criteria for portfolio landlords.
In September last year tougher lending criteria for portfolio landlords came into force. Under the new criteria, landlords with four or more properties now need to show full financial information for every property in their portfolio when they apply for any new finance, instead of just showing their overall profits.
This will potentially affect landlords in two ways; by increasing the length of time it takes for portfolio landlords to access new finance and leading to investors with heavily mortgaged properties in their portfolios being turned down for new loans.
How can we help?
At Landlord Debt Advisory, we offer bespoke solutions for landlords with problem debts. If you’re a landlord struggling with negative equity, underperforming properties or the impact of recent tax changes such as Section 24, contact Landlord Debt Advisory for an initial free, no obligation consultation.