Research from ARLA (The Association of Residential Lettings Agents) Propertymark suggests that the number of landlords quitting the Buy-to-Let sector is increasing, with a 25% rise in the last month.
Changes to stamp duty and tax relief are continuing to cool the market, with a survey showing that four landlords per branch sold up in March, up from three in February. The survey, conducted by Opinium Research consisted of 331 member branches, and was carried out in April.
The rise to four landlords per branch selling up is the highest number since November 2016, when a ban on letting agents charging tenants was proposed. This, combined with higher stamp duty for Buy-to-Let investors and changes to tax relief and tightening mortgage criteria means many residential landlords are considering whether to sell up.
Why are landlords selling up?
Research from Axa revealed earlier this year that 50% of private landlords are planning to withdraw from the market by 2020. This is essentially down to two factors:
• An extra stamp duty surcharge of 3% to be added if a property is not the buyer’s main residence
• Tax relief will be tapered down and replaced with a 20% tax credit by 2020
Currently, landlords are permitted to deduct mortgage interest and other allowable costs from their rental income before calculating how much tax will be paid to H M Revenue & Customs (HMRC). Over the next three years, the amount of interest that Buy-to-Let investors will be able to offset against their rental income will be reduced, resulting in higher tax bills for many landlords.
These changes will see an estimated 440,000 basic-rate taxpaying landlords finding themselves in the higher-rate tax bracket.
How will this affect landlords?
According to figures from Nationwide, a landlord with a £150,000 buy-to-let mortgage on a property worth £200,000 charging £800 per month rent would be £1,200 worse off over the course of a year. Those with a higher interest rate will be affected most by the change, which when combined with the additional stamp duty will see some landlords seeing their property investment returning a loss.
The Chief Executive of ARLA Propertymark, David Cox, commented: “Two-thirds of ARLA members fear further landlord taxes will be introduced this year. Following the announcement of the ban on letting agent fees, we expect the situation to only get worse for tenants when inevitably the costs are passed onto tenants through higher rents.”