Soaring Costs For Buy-To-Let Investors

New tax rules being phased in from April 2017, higher stamp duty costs and new changes to the way buy to let lenders assess customers’ ability to borrow funds for a buy to let have all combined to make the cost of owning a buy to let more expensive. Fox Davidson take a look to see if these changes will result in increased rent payments for tenants.

2016 has been a hard year for the buy to let investor. The key issues affecting landlords are:

  • Stamp duty rates are now loaded by 3% for anyone buying a residential property who on completion will own more than one residential property. Click here for stamp duty calculator.
  • The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of Income Tax, this will be phased in from April 2017.
  • The Prudential Regulation Authority (PRA) introduced new rules for lenders to abide by making it tougher to borrow as much, so easily on buy to lets. An implementation timeline of 1 January 2017 for the more straightforward changes, and 30 September 2017 for the remainder.

The increasing cost to buy to let property investors is evident. Stamp duty costs are immediate; the tax changes will become more apparent from next tax year through to 2021 and anyone taking out a new mortgage will find that mortgage costs have risen as mainstream lenders will be replaced by more specialist lenders able to meet the demands of landlords.

The quickest fix would therefore seem to be an increase in rent as costs are passed on from landlord to tenant.

The issues landlords have is that rents can’t be altered until a tenancy comes to an end and this will generally vary from 6 to 24 months. A financially savvy landlord will have factored the increasing costs into current tenancy agreements. There are lots of landlords with ‘good’ long term tenants that have benefited from no rental increases for many years but the landlords hand may now be forced and even they may see rental increases.

Figures from Estate Agency Your Move showed that average rents across England & Wales increased by 8.7% to £887pm.

London rents were up by 6.9% from August 2015 and now average £1,391pm. Director Adrian Gill commented ‘The rental market appears to have left behind any uncertainty about the market, with prices across England and Wales again reaching record highs.’

He continued ‘Yields have picked up following a gentle decline in recent months, which landlords will no doubt watch with interest.’

Other Options?

Rather than raising rents, landlords have some options. Some will sell, as simple as that. Other landlords will stop investing further and those that continue to purchase will look to avoid the income tax changes by financing property purchases in the name of a UK limited company.

The risk is that with less landlords investing in property due to mounting costs, less private rented property will be available and therefore rents may be pushed up due to lack of availability.

We are very keen to hear from landlords and tenants and to get your thoughts so drop us an email and let us know if you will be charging more considering the increased cost of buy to let. Email: enquiry@foxdavidson.co.uk