Two years on from sweeping tax reforms to buy-to-let, the Government’s aim of limiting small-scale amateur landlords appears to be closer to fruition.
Research conducted by Simple Landlords Insurance has found that a third of landlords with just one buy-to-let property are planning to sell and give up on buy-to-let.
Meanwhile, 38 per cent of landlords who own two or more properties say they are planning to buy at least one more in the coming year.
Landlords with larger portfolios are planning further investment this year but those with one investment property are considering selling
Tom Cooper, of Simple Landlords Insurance, said: ‘The research reveals it is the landlords positioned at the larger end of the market – or aspiring to get there – who are least fazed by tax changes.
‘They are also the best poised to take advantage of increasing tenant demand and bargain housing stock being sold off.’
It follows two years of change for buy-to-let landlords.
Former Chancellor George Osborne first announced a tax raid on landlords in 2015, stating the move was designed to support home ownership amid claims that landlords were scooping up properties and making it harder for hopeful first-time buyers to compete.
Intending to put a stop to this, the Government slapped a 3 per cent surcharge on stamp duty payable on new buy-to-let purchases from April 2016. This trebled the tax bill compared to residential property in some cases.
A further change arrived in April last year, as landlords began to lose their tax relief under a rule known as Section 24, which also forces them to pay tax on their rental income rather than just on their profit after mortgage costs.
Furthermore, the Bank of England also clamped down on mortgage lenders, forcing them to require landlords to earn a much higher ratio of rental income compared to their mortgage payments.
In October last year, further rules were brought in for landlords with four or more mortgaged properties to ensure their debt levels are not too high.
This chart shows how house prices have risen across the UK over the past decade-and-a-half, according to the ONS
High house prices have also squeezed those looking to get into buy-to-let, while encouraging some smaller landlords fearing the headache of higher taxes to take profits and sell up.
House prices rose across the country, except in London, in the year to February, ONS figures showed this week.
Cooper added: ‘From Section 24 to Right to Rent, increased stamp duty, capital gains tax, regulation and licensing, you’d be forgiven for thinking it was all doom and gloom in the private rented sector.
‘But our evidence shows there are landlords adapting to the changes and emerging like phoenixes from the ashes.’
Some 38 per cent of the landlords with two or more properties said they plan to buy at least one more in the next year – dwarfing the 11 per cent of landlords with single properties who are planning to expand.
Meanwhile, 30 per cent of single property landlords plan to sell, compared with just 8 per cent of landlords with more than two properties.
The number of accidental landlords is also on the decline, falling from 18 per cent in 2016 to 15 per cent in 2017, widening the gulf between them and more professional investors.
Carl Agar, managing director of estate agent Big Red House, said: ‘Times change. Markets change. But property can still be a way to make money if you change too.
‘There’s a clear difference between the big players and the dabblers, the old school landlords and the new kids on the block.’
Source: BM Solutions – London was the only region to see rents fall in the second half of 2017
Yields from rental income are still healthy
Separate research released last month painted a healthy picture for landlords. Yields rose in the second half of 2017 compared to the same period the year before in every region except London, which was the only region to see actual rental incomes fall.
The average gross rental yield on buy-to-let hit 5.2 per cent in the second half of 2017 according to BM Solutions – which is part of Lloyds Banking Group and one of the two biggest buy-to-let lenders in the country.
Landlords in the North of England are reaping the best rewards with yields touching 6.9 per cent at the end of last year.
Northern Ireland offers an average rental yield of 6.2 per cent, followed by the North West, Yorkshire and the Humber and Wales, all of which offer 6 per cent yields on average.
Agar said: ‘Your traditional landlord is seeing all of these new rules imposed and their returns drop. Meanwhile those new to the market are comparing those returns to what they’d get putting their money into a savings account – and it actually looks pretty good. They’re seeing opportunity, and building the rules, regulations and changes into their business model.
‘Personally, I’m looking forward to a more professional and more prosperous private rental sector, driven by a new breed of landlord investor.’
New focus for landlords
As well as being bigger and more professional, the emerging landlord is also investing differently, and diversifying their portfolio, according to Simple Landlord Insurance’s report.
The classic two up, two down home for families of working tenants is no longer where landlords poised for growth are investing.
Instead, higher yielding properties including holiday lets and flats are becoming more popular.
Landlords renting out houses in multiple occupation – properties let to more than one tenant on separate tenancy agreements – are also feeling optimistic, with 43 per cent in buying mode and just 4 per cent planning to shrink their portfolios, according to the research.