Landlords cash in on PRS
22 Sep 2015
It has been something of a tumultuous year for the buy-to-let sector, particularly for landlords who might have watched aghast as George Osborne seemed to go against type and announced the phase out of higher tax relief on mortgage interest payments. In one fell swoop, this appeared (by some reactions) to dis-incentivise the practice of purchasing buy-to-let properties and I suspect many landlords, tax advisers, accountants, and all manner of other stakeholders since then have been weighing up the consequences and the potential options available.
Of course, Osborne sweetened the ‘pill’ somewhat by announcing a phased-in approach which would not kick off until 2017 and wouldn’t actually be totally complete until three years later. Supposedly, this gives landlords enough time to weigh up the true impact of such measures and to perhaps get their house in order before the process actually starts. However, if I were a landlord I’d not delay one minute longer than necessary before deciding the strategy to adopt.
Some landlords may well think now is the time to take significant action, i.e. well before 2017 and I expect that some might be considering their exit from the buy-to-let stage. However, given the long-term nature of property investment, the majority will continue their investment but may perhaps be looking at a limited company vehicle to house their existing portfolio and certainly, in terms of any further purchases, it might be wise to look at this option going forward.
I tend therefore not to buy into some of the more extreme headlines which have greeted the move such as ‘one in five landlords being forced out of business’; having talked to advisers (many of whom are landlords themselves) the over-riding perception appears to be, “It’s far from ideal, but we can make it work”. Not forgetting too that lenders should respond to these changes and, where appropriate, perhaps there will be more focus on limited company lending.
Buy-to-let product supply has been on the rise for some time and this is set to continue especially from the specialist buy-to-let operators such as Paragon, Fleet Mortgages and other new entrants. It will be interesting to see, however, whether the more standard/large-scale buy-to-let players push further into the limited company space or will they prefer to maintain their propositions still in the ‘standard area’? Some lenders have focused on the ‘amateur landlord’ with at most a handful of properties; however regardless of the size of your portfolio, if you are a higher-rate taxpayer then lenders are unlikely to miss the opportunity to respond appropriately.
Despite these developments, the consensus is that strong demand will remain for buy-to-let and investing in property, and one suspects where one landlord decides to call it quits, others will fill the space. Indeed, this could come from the 55-plus age range who appear interested in using their new-found pension income freedoms to explore the property asset class. Research from the Prudential recently suggested more than a third plan to buy at least one more property in their lives so that interest in property appears to be growing in this demographic.
All in all, I suspect that mortgage advisers’ services when it comes to buy-to-let advice will be in demand in the months and years ahead. Renting remains a key part of fulfilling the UK’s housing needs with many people wanting the freedom that renting provides whether they are in a position to get on the property ladder or not. The private rental sector is likely to play a growing part in the housing mix and the next and current generation of landlords appears intent on securing property in order to facilitate this.
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