Landlords Raising Rent Or Selling Property To Recoup Losses

Landlords are raising rents in response to tax changes

It’s been two years since changes to buy-to-let mortgages also changed the way that landlords are taxed. As some had predicted, many landlords have been forced to reconsider their position and think about what the future now holds for them.

How has buy-to-let tax changed?

Before 2017, landlords could deduct mortgage expenses from their taxable profits, including all of the interest they paid for the mortgage on their rental property.

In 2017 this began to be phased out until April 2020. it stopped altogether. This was replaced by a 20% tax credit, which is substantially less for higher rate taxpayers who, under the old system, would have received 40% tax relief.

How has this affected landlords?

These changes in how landlords are taxed have had significant implications for them, with one in three reporting that their portfolio is not as profitable as it was before the changes came in. The same number of landlords have considered selling properties due to the loss of mortgage tax relief.

Apart from the financial impact, the lettings sector is undergoing a raft of changes, with more on the horizon; we recently talked about how the Renters Reform Bill will change things. All these changes and proposals are proving challenging to keep up with, causing 58% of landlords to claim that changing and confusing government legislation is the biggest challenge.

Two options for landlords

In addition to changing legislation, 32% of landlords stated that rising taxes are also a key challenge. To manage the financial impact of these changes, landlords are taking one of two main options – raising rents and selling properties.

25% of landlords said they have increased rents to cover the cost of increasing tax on their tenants, and for landlords with more than 20 properties, this increases to 58% passing on costs.

Around the same proportion of landlords with more extensive portfolios (26%) have reduced the size of their properties to reduce the impact of tax changes. However, the percentage decreases to 13% for landlords with smaller property portfolios.

What does the future hold for landlords?

With more changes to the law on the drawing board that will impact landlords, for example, renting with pets, changes to energy efficiency rating requirements, as well as possible interest rate rises, life for landlords won’t get any easier in 2022.

Ongoing changes and uncertainty in the rental market will continue to have unintended knock-on effects, such as reducing the amount of affordable housing and rental properties on the market.

Despite the challenges, almost 60% of landlords still believe that letting a property is worthwhile. Demand for rental properties is still high, so there is still much for landlords to be optimistic about, so long as they have a realistic business plan, which includes the right support that keeps costs down and maximises occupancy.

No Letting Go

If you would like to discuss how our local support or national network at No Letting Go could become your inventory partner, streamline your costs and reduce your workload, then contact No Letting Go today.