After years of strong performance and a good market for investors to invest in, the UK buy-to-let property market may now be facing difficult times ahead. It is known that landlords have profited from the buy-to-let market ever since the financial crash, but with tax reforms and a number of other regulations coming in to play, the buy-to-let market may be staring at dark times ahead.
The Issues Landlords will face in the near Future
Despite a number of strong performing years, the buy-to-let market is facing difficult times, with a number of different factors contributing to the potential fall of this market. The Government have begun to clamp down on a number of different things, and where the buy-to-let market is concerned, tax reforms and other changes to the way the market works will begin to have an impact.
Cuts to Mortgage Interest Tax Relief – As of April 2018, landlords will no longer be able to offset as much of their mortgage interest, down from 75% to 50% tax relief. This amount is set to continue to drop until 2020 when it reaches 0%, at which point it will be replaced by tax credit set at 20% of mortgage interest.
Energy Efficiency Regulations – As of April 2018, landlords will need to ensure that their EPC rating is at a minimum of an E, with big financial penalties to anybody that doesn’t comply with the new rules. This will only apply to new tenancies and renewals for the time being, but will apply to all tenancies as of 2020.
Ban for Letting Fees to Tenants – Although not coming into effect until at least 2019, the Government are looking at banning letting agents from charging fees to tenants, meaning that landlords are likely to pay extra to cover things such as contracts and referencing.
Increases to Mortgage Prices – With the Funding for Lending and Term Funding schemes closing, it is likely that mortgage prices will increase.
Licenses for Landlords – Local councils across the UK are looking to implement landlord licence schemes, of which include large financial penalties for anybody that doesn’t comply with the rules.
Stricter Lending Criteria – Portfolio landlords will face stricter criteria when looking to obtain a mortgage, with all properties within their portfolio subject to affordability checks before their mortgage request can be accepted.
A Tough Future for the Buy-to-Let Market
Following research from the Intermediary Mortgage Lenders Association, it is now known that investment into the buy-to-let market has dropped by 80% between 2015 and 2017, falling from £25 billion to £5 billion. Approximately three quarters of landlords would be forced to sell their portfolio is they were making anything less than what they consider to be a good level of profit.
In addition, two fifths of landlords believe that they will have to increase rents to cater to new regulations and charges, to continue to make a profit, and this could mean that they are unable to attract or keep tenants. Without the ability to bring tenants in, landlords may well be forced to sell their portfolios and move out of the buy-to-let market.