Nearly half of all buy-to-let landlords intend to expand their property portfolios despite the April tax changes

There were always likely to be consequences for the buy-to-let sector following former Chancellor, George Osborne’s ‘rebalancing’ of the rental/ownership market in 2015. The then Chancellor proposed that from April, 2017 the offset of mortgage interest available to higher rate taxpayer-landlords would be gradually reduced to the basic rate by means of a four-year withdrawal of the relief: in 2017/18 landlords would only be able to apply the existing relief rules to 75 per cent of their finance costs with the remaining 25 per cent using the basic rate reduction. In the following three years the relief would be reduced by a further 25 per cent each year before the basic rate cap applies in full from 2020/21.

Prior to the introduction of the first part of this new plan in April this year, Mortgages for Business sought the opinions and views of its members via a Property Investor survey. The survey found nearly 60 per cent of buy-to-let landlords feared the changes to income tax relief and tighter mortgage affordability tests would have a negative effect on their businesses. More worryingly, 10 per cent of the landlords surveyed admitted they weren’t even aware of the planned tax changes in April. If there was good news for the sector it was that, despite the impending changes, only 9 per cent of respondents said they were likely to minimise their property portfolios within the next six months: what’s more almost half of the respondents (45 per cent) claimed they planned to invest in further property acquisition.  

Speaking about the Property Investor survey, David Whittaker, CEO, Mortgages for Business, said although the survey’s findings show there is some concern within the sector, the fear that many thought would follow 2015’s announcement has failed to materialise. However, he advised all landlords to seek expert help from accountants to minimise any potential losses in the future:

“The percentages feel about right for the market in general and it has certainly been a tough 18 months or so for landlords.”

“We are still encouraging landlords who haven’t already taken professional advice on the matter to do so ASAP, as some may find that the new formula will tip them into the next tax bracket leaving them worse off.”

So are the Property Investor survey findings surprising? Well, not really. In fact, they are very much in line with the latest Prudential Regulation Authority (PRA) rules on buy-to-let lending, which will put a ceiling on loan to value rates. There nearly 60 per cent of respondents stated they were clear on the impact of the rule changes on how much they can now borrow.

Since 1st January 2017, buy-to-let lenders have been forced to use more stringent affordability calculations. In spite of these, nearly half of all residential landlords are still intent on expanding their property portfolios, and seem content to accept the increased costs involved because in the longer term property investment has been shown to provide a greater return on investment than many other assets.

If you are already a buy-to-let investor or are looking to invest in the sector, then please feel free to speak to Steven Glicher accountants. We work closely with landlords and offer expert advice.

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