Landlords plan to leave the rental market as mortgage tax relief is rolled out

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As the mortgage tax relief restrictions begin to be rolled out today, the latest analysis from AXA suggests over 40% of landlords believe they will be worse off than the government estimates, despite the government’s assurances that 82% will not have any additional tax to pay.

The study carried out by AXA found that almost half of landlords affected by the tax changes are planning to quit the rental market by 2020 as they believe they are being unfairly targeted.

AXA found evidence that 21% of landlords plan to sell all their rental properties, 10% will reduce their portfolio and 7% will switch to commercial property ownership as it is thought to be a safer option.  A further 8% said they would transfer the property ownership to a family member in a lower tax bracket to avoid any additional tax.

One landlord in West Midlands commented saying: ‘Landlords with mortgages on their buy to let properties are unlikely to make much profit with the new system coming in. People like me may just decide the new system isn’t worth the hassle and sell their properties leaving less accommodation for people to rent’.

Two thirds of landlords surveyed said they felt stigmatised for running a rental business, with one claiming that after mortgage, tax and repairs he doesn’t make any profit on his two rental properties.

Gordon Rutherford, head of marketing at AXA Insurance said: ‘Landlords have been subject to one piece of new legislation after another in recent years, much of it very complex indeed. We see a real confusion as to what the new tax changes will mean, with government and landlords giving very different estimates of the impact.

He added: ‘We need to remember that few landlords are professional property tycoons. Two thirds in the UK are accidental landlords. They tend to own just one rental property that they’ve inherited or are finding hard to sell, and they make a modest income once time and expenses are out. They do feel increasingly apprehensive, as we can see from the numbers thinking of withdrawing their properties from the rental market in the coming years’.

Steve Bolton, founder of Platinum Property Partners, believes the tax changes could damage the UK buy-to-let market.  He pointed out that: ‘Landlords will no longer be able to offset all their finance costs against their rental income before calculating their tax bill. In implementing these changes, the Government is breaking an age old taxation practice and is forcing landlords to pay tax on part of their costs despite no other type of business having to follow such rules’.

‘Landlords play an integral role in today’s property market. Rental demand is at an all-time high, and not just because many have been priced out of buying a home in their desired location. A growing number of people are choosing to rent because they enjoy the convenience and flexibility, and our increasingly mobile workforce requires it. The Government itself admitted in its recent white paper the importance of a fair and affordable rental market: yet by targeting landlords’ profits, these changes will inadvertently make renting more expensive for tenants,’ he said.

Bolton points out that the tax changes won’t just affect the higher rate taxpayers.  It is estimated an additional 440,000 landlords will now be pushed into the higher tax bracket due to finance costs artificially inflating their income.

Many landlords will be forced to sell their properties, increase rents or leave the market as their tax bill will begin to outweigh their profit.

Bolton believes that the tax changes are based on a fundamental flaw that driving landlords out of the housing market will improve first time buyer levels. ‘This simply isn’t true. Landlords and first time buyers do not buy the same types of properties, and shrinking rental supply won’t suddenly help first time buyers to save for a deposit. In fact, it will do the very opposite as rents become more expensive. The sooner the Government realises this and reverses the changes, the better,’ he added.

Full article available on Property Wire:

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