Support, Advice and Experience within the Property Market

What will the recent budget mean for landlords?

From Robert Ulph on July 13, 2015

It was anticipated that George Osborne would use the recent budget to implement plans to try and slow down the increasing Buy-to-Let investment market and therefore he announced a couple of new measures which may have an impact on you as an existing landlord or if you are considering investing in the rental market.

First, Mr Osborne announced plans to reduce the amount of tax relief investors can claim on mortgage interest payments. The amount that landlords will be able to claim will be set at the basic rate of tax, which is currently 20%. The move is aimed at creating a “level playing field” between homeowners and investors, chancellor George Osborne said. The change will be introduced over four years from April 2017.
This can be seen to be a blow to the market but I do not feel this will affect the market too badly on a local level. The changes will be introduced slowly which should soften that blow, so I would hope that it will not prevent the market from continuing to grow as small, private investors are the backbone to the rental market in this country.

Equally I hope we will not see a mass exit from current investors, especially as most new investors I have been in touch with have decided to go completely risk free and purchase their rental properties outright with cash from other investments/pensions and therefore the reduction in tax relief does not affect them.

It was also announced that Mr Osborne is going to replace the current wear and tear costs of rental properties to a new system that means landlords can only deduct the exact amount that they will incur. Again another impact but how significant is this?

However, the unintended consequence of these two announcements is that some landlords may seek to recoup their additional costs by increasing rents, which many do not always choose to do. What we know at Pennington is that the number one priority for landlords is to have a good tenant and while it has been debated that rents are going up higher than inflation, we find that about 40% of landlords don’t take up any annual rent increase in line with competition but actually prefer to keep tenants at the same rent. Even where we do see increases these are not the ‘massive hikes’ some report but are what the market dictates. Landlords want to attract good tenants and keep good tenants and rent plays a significant part in that.

But once again we see intervention in the market which has ramifications elsewhere and the housing market must be viewed more holistically, finding the right balance between landlord and tenant.

As always if you have any questions about this subject or any other property related issue please do not hesitate to contact me.