The property market in the UK is always a hot topic and the theme of “first-time buyers versus landlords” has been rumbling on for years now. Recently, the government has taken two steps which are both disadvantageous to landlords. They are changes to mortgage tax relief and new affordability checks.
Changes to mortgage tax relief
From April 2018, landlords will only be able to claim tax relief at the basic rate of income tax, ie 20%. This means that landlords on lower incomes will continue as usual, but landlords on higher incomes will receive, at most, half the relief currently available to them.
Various organisations have tried to predict the impact this will have on landlords but basically there’s pretty much unanimous agreement that, for higher-rate taxpayers, the impact will be bad to terrible.
Some landlords have been moving to take advantage of what has been billed as the “limited company loophole”, ie moving an existing portfolio under the umbrella of a limited company, but this is a risky move. Regardless of whether or not it is legal at the moment, HMRC tends to take a dim view of any action which looks like it was undertaken for the specific purpose of avoiding tax and, if necessary, can get the government to take action to change the rules as required. While the rules may not be applied retrospectively, landlords may find that they have gone to the hassle and expense of setting up a limited company for absolutely nothing.
Changes to the affordability criteria
The aim of these new criteria is both to prevent landlords from overstretching themselves and to protect tenants, who may find themselves in a difficult situation through no fault of their own. By coincidence, it also protects mortgage lenders from potential losses caused by potentially having to sell property at “fire sale” prices.
Currently, it’s hard to say what impact, if any, these changes will have other than meaning that landlords who require mortgages may have to fill in a lot more paperwork than they used to. However, it may result in a bonanza for cash buyers as smaller-scale landlords drop out of the market.
Looking to the future
The housing marketing is are driven by the laws of supply and demand and in the UK, demand for housing far outstrips supply. This has been the case for many years now and there is nothing to suggest that this is going to change at any point in the near future, not even if Brexit triggers a mass departure of EU immigrants (and presumably a mass return of UK ex pats).
It’s also fair to say that in most markets, costs are ultimately passed on to the end consumer (and this includes the cost of someone’s time) in this case the tenant.
In theory, tenants could “opt out” of renting by buying (or staying with their parents). In reality, however, there are all kinds of reasons why renting is actually the best choice for a number of people and hence all kinds of reasons why the buy-to-let market is likely to remain healthy overall.
Author : Mark Burns
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic.
Published on 1st February 2017
(Last updated 23rd March 2018)