Investments
12 September 2018
In what has been a few painful years for the buy-to-let market, the latest data from the Ministry of Housing, Communities and Local Government (MHCLG) has seen the biggest drop in rental homes in England since 1988.
Which? Money has reported over 4,000 rental homes being sold off by landlords each month. With over 46,000 lost from the rental market last year alone, this is the biggest reduction in 20 years as the stock of rental properties fell to 4.79million. Along with a reduction of 10% year-on-year of buy-to-let mortgages, this shows that people are not rushing to fill the gap.
Why are they leaving?
To start, the Chancellor gave the market a 3% surcharge on all second homes and buy-to-let properties in April 2016. This meant that stamp duty was:
- Only £1,500 on a £200,000 property before April 2016
Whereas now it is:
- 3% on the first £125,000 and 5% up to £250,000, giving a total bill of £7,500
Tax relief is also being phased out over four years and will be replaced with a 20% tax credit in 2021. Instead of being able to pay tax only on their profit, they are now forced to pay tax on their revenue. This, in turn, has pushed many into higher income tax brackets and in some cases has wiped out their profits completely.
And finally, to add just that little bit more pain, landlords with four or more mortgaged buy-to-let properties were hit by ‘portfolio rules’ in October last year. This means that their finances had to make sense on all their properties every time they re-mortgaged just one or sought a new mortgage. The effect on the market has been devastating.
So, where’s the money going?
Investment companies, including Propiteer, have seen an upturn of landlords either:
- Re-invest in alternative property investments such as Propiteer’s Planning and Development vehicle
- Move into larger-scale investments linked to franchised hotels
With monthly income generating returns of 10 to 15 % per annum and no headache of managing their portfolios, landlords are turning to this alternative market.