Landlords to be adversely affected by tax changes and tougher lending conditions

Having long provided mega double-digit returns for investors, investment in buy-to-let has outperformed all major asset classes in recent years, but the government’s decision to introduce a number of measures to curb the growth of buy-to-let landlords has prompted concern that the buy-to-let windfall may be coming to an end.

Investing in property has long been perceived to be a safe alternative to the failing of the pensions industry, but the reality is that for many people buy-to-let suddenly looks like an unattractive proposition following a raft of changes designed to deter people from investing in the buy-to-let market.

Mortgage tax relief is set to be phased out from April of this year, while the Bank of England’s Financial Policy Committee has been granted greater powers over the buy-to-let market, which will make it even harder for many buy-to-let landlords to get a mortgage due to new tougher mortgage affordability tests which will adversely affect the majority of landlords in this country.

According to the latest property investor survey from Mortgages for Business, 60% said they believe they will be directly affected by income tax relief changes.

“We are still encouraging landlords who haven’t already taken professional advice on the matter to do so as soon as possible as some may find that the new formula will tip them into the next tax bracket leaving them worse off. The new regime starts in April, so there’s not much time left to make strategic decisions and take action,” said David Whittaker, chief executive officer of Mortgages for Business.

The survey also found that 60% believe that they understand the impact of the new Prudential Regulation Authority guidelines on buy-to-let lending and a quarter said they partly understood the implications of the changes to borrowing criteria.

With tax changes due to take effect in April, many buy-to-let landlords are opting to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016.

Overall, despite tougher investment conditions, the proportion of landlords seeking to add to their portfolios increased to 45%, up from 41% in May 2016. 

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