Tenant defaults could increase significantly over the next 12 months amid reports that many buy-to-let landlords plan to increase rents next year to offset tax hikes from April 2017, according to Upad, one of the UK’s largest online letting agents.
As many of you will know, the existing rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.
By April 2020, once they have been withdrawn altogether, the disastrous consequences of Section 24 will mean that it is likely that higher-rate tax payers will only receive 50% of the relief that they currently get, with various experts having already warned that landlords will be left with little alternative but to pass higher costs on to tenants.
With many landlords likely to face the prospect of having their profits unjustly wiped out, the majority of landlords will have no option but to recoup their losses through higher rents, with tenants ultimately paying the price of the government’s unfair tax-grab.
The online letting agent fears that many tenants will struggle to meet inflated rent prices, with the company pointing to recent data revealing that almost 10% of all tenants in the UK fell behind with their rent payments in August 2016, and this growing problem, albeit from a low base, has forced more than 34,000 landlords to issue possession claims between July to September 2016.
Upad is now urging the government, ahead of next week’s Autumn Statement, to readdress the buy-to-let tax changes to take the pressure of both landlords and tenants’ finances.
James Davis, CEO and founder of Upad, commented: “Rent arrears are becoming the fastest-growing problem for landlords, as well as tenants across the UK, and this will no doubt be their biggest issue in 2017.
“Not only have investors had to contend with the new 3% stamp duty surcharge this year, but from April 2017, they are also facing plans to prevent landlords deducting mortgage costs from rental income and limiting tax relief on mortgage interest payments. These increased landlord costs will only make matters worse, especially for tenants who in some of the most expensive areas, such as our capital, are paying up to two thirds of their salary on rent.”
He continued: “The chancellor needs to think carefully about the damage that is likely to be done, primarily to tenants, particularly if people are relying more on the lettings market than the sales market going forward in the wake of Brexit.
“Over stretched landlords will try to recoup these additional taxes by increasing rents, but if wages struggle to increase more than inflation, landlords will struggle to secure rises, putting the entire lettings financial model at risk.”