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A ‘perfect storm’ is brewing for buy-to-let landlords

News that a growing number of buy-to-let landlords are likely to exit the private rented sector or reduce the size of their property portfolio over the next 12 months due to policy changes comes as little surprise to many people, including a senior property investment specialist.

The findings of a survey by the National Landlords Association (NLA), published last week, shows that 20% of private landlords look set to reduce the number of properties in their portfolio over the next 12 months due a range of anti-landlord policies, especially in relation to new tax legislation.

The introduction of the 3% stamp duty surcharge, the scrapping of the 10% ‘wear and tear’ tax allowance, and the fact that mortgage tax relief is currently being phased out, have prompted concern that there could be a net reduction of private rented properties this year, as more experienced landlords sell rather than buy.


Comment on NLA’s findings, Simon Heawood from Bricklane, the property investment platform, said: “We will see steadily increasing outflows from the buy-to-let market, in favour of a continual consolidation of portfolios around professionalised, large scale landlords, who in turn benefit from scale advantages, tax-efficiencies, and professionalised approaches to investing and driving up tenant service provision.

“A perfect storm is brewing for landlords looking to property simply as a financial asset. Policy makers across the political spectrum are acknowledging that home ownership is valuable because it affords permanence and security, and not just for the financial returns which placated constituents of yesteryear.”

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    so basically the ' flash with no cash boys' who have borrowed far too much will be selling, good, should be some cheap properties to be had in the auction room then.

  • Formula OneFan

    I think the changes are actually good and will get rid of all the over financed people buying a one off property so them can boast to their mates in the pub of their wealth, these guys inflate the market, make it harder for full time investors, and then they all disappear when the bubble bursts, which they created! Yes we all started with just one property, but the changes are good for the long term sustainability of the buy-to-let market.

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    And a lot of skilled people who bought 20-30 years ago will have achieved their objective of getting a decent pension to compensate endless rounds of redundancy due to asset stripping or increasing shareholder value and seen their pension funds blatently ripped off by professional fund companies. I am one of those people

    Age 40 twenty five years ago means age 75ish now so its time to sell up and dissipate the cash.

    Yes of course a lot are over leveraged and they have been very lucky to get away with it so far. The rest of us have done it sensibly and quite honestly I couldn't care less about the equity. It is no use put in my coffin. In any case the original equity is almost peanuts after inflation. I will do something for my children of course but that will be after any payments I need for the near future.

    If I was starting again I would do things differently. "Things have changed". I can see that and know how to handle it. Unfortunately there is little point. If you are a youngster then go for it.

    Looking at the current tax situation I think UK families will have to take a lot more care of their family structure and finances. Immigrants do this already.

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    biggest pension rip off was by brown

    however the current compulsry pension is also a rip-off

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    With all the tax and regulations changes, residential B2L is dead, there's no money in it, especially if you encounter bad tenants!
    Unless your mortgage free, then there is only airbnb or HMO left with the big financial risks you take with your investment.

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    • 20 February 2019 12:12 PM

    There appears to be much snobbery by certain LL that those who borrowed to invest are derided as somewhat 'Flash Harrys'
    A LL who borrowed at 85% is still less of a 'flash harry' then many homeowners who are borrowed at 95% LTV!!
    So why the approbrium for this very normal level of borrowing amongst LL!!?
    It is simply not true that LL are overleveraged.
    Indeed most LL are leveraged at a very safe 75% LTV and are indeed considerably less leveraged than homeowners.
    One wonders how many homeowners in Swindon will find they are indeed 'flash harrys'!?
    They could well find as homeowners that are overleveraged.
    For those who are tenants then many LL will face the prospect of UC.
    Something to look forward to!!!!!!!
    Whether UC will be sufficient to meet the current contractual rent is the big question.
    I have no idea what the private rent levels in and around Swindon are compared to LHA .
    LL might have to offer an awful lot of forbearance!!!
    Combined with the increasingly worsening effects of S24 such forbearance may not be viable.
    I suggest that many LL in and around Swindon will have to sell up sharpish or risk bankruptcy.
    Where the tenants are supposed to is anyone's guess?
    But many such LL will be placed in impossible positions.
    Mortgaged homeowners now face the prospect of being forced to have their debts increased by receiving mortgage assistance which is now advanced as a loan to be repaid when the property is sold.
    Homeownership will be revealed as no safer than being a tenant unless the property is unencumbered.
    All that is occurring is a homeowner is renting from a bank until the 1st charge is paid off.
    Neither form of tenure is secure but at least tenants can have their lifestyle supported by benefits which can easily reach the OBC of £20000 outside of London.
    There will be many former Swindon car workers who will discover that as tenants welfare provides quite a nice work free lifestyle.
    Which tells you everything about how generous the welfare system is.
    Such welfare recipients will actually be in the upper 25% of income earners.
    It will be seen that very few LL are overleveraged at 75%.
    Homeownership is simply not the secure form of tenure that everyone makes out especially when they are the riskiest of borrowers at far more LTV than most LL.
    It is largely S24 that is driving LL to sell up etc.
    Most of these LL who seem to have suddenly become aware of S24.
    These LL are absolute idiots.
    The shrewd LL of whom I know a few have been rearranging their portfolios since the S24 announcement in 2015.
    They have in most cases been slowly selling up since 2015.
    That is what all LL should have been doing!!
    Few have!
    The LL who are exiting the industry are mostly being caused by S24 and the MEES regulations.
    It is the mortgaged sole trader LL that is mostly affected by these issues.
    Only 25% of the of the PRS are mortgaged sole trader LL.
    But they currently house at least 2 million tenants.
    The country can ill afford such LL leaving the sector.
    As for the twaddle that is being stated about professionalising the industry defies description.
    I am just as professional if not more than a LL owning with mortgages 100 properties.
    Those LL being forced out of business by S24 are every bit as professional as large scale mortgaged LL trading as sole traders.
    So let us not have anymore of this absolute rubbish.
    Professional sole trader LL are being forced out of business mostly by S24.
    That has nothing to do with professional capability and everything to do with the absolutely bonkers S24 turnover tax.
    There are very few businesses in the UK that would be viable with an equivalent of S24!!
    For those LL that have the good fortune not to need leverage or who are incorporated they have for the time being escaped S24 though of course the jury is still out as to whether incorporated LL will face a form of S24 if the Treasury can work out the details of how to force professional leveraged incorporated LL out of business like is being done to sole trader LL.
    Those unencumbered LL are largely irrelevant as very few of them will be able or even willing to buy the properties that sole trader LL are being forced to sell.
    Any LL who is leveraged at mostly a maximum of 75% is very sensibly leveraged compared to leveraged homewners.
    Such LL are considerably less of a risk to the housing market than honeowners.
    This will be shown in sharp relief in Swindon.
    Being a homeowner is a very risky proposition.
    The problem for tenants is whether LL will be prepared to accept LHA with possible though highly unlikely top-ups.
    The Swindon experience will be very instructional as to how the housing market overall performs when such large scale major employers exit the UK.

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    I have incorporated best thing I ever did my partner missed the boat this year and his tax bill was 100% of his income already he has since incorporated this tax is going to cause absolute carnage on a scale never before seen.

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    • 20 February 2019 12:32 PM

    You have been very shrewd in achieving incorporated status though it is not the pancea for S24.
    It is clear that S24 is a cunningly disguised culling device to get rid of ALL mortgaged sole trader LL.
    Indeed it must have been a plan devised by Baldrick!!
    The sheer costs of incorporating means that few LL can escape S24 by such a strategy.
    You have to hand it to the Treasury wonks S24 has been a very clever tax that few of its victims have even been aware of the effects until NOW!!
    The proverbial is now hitting the fan and LL are baling!
    The Govt simply has to realise as indeed the Irish Govt did that taxing turnover is simply unviable.
    This is why the Irish Govt has abolished their S24 version which was far less onerous than the UK S24 and yet still had the effects of increasing rents by 50% over 3 years and causing increasing homelessness.
    The Irish Govt is now having to offer incentives to private LL in efforts to encourage those LL to return to the Irish PRS.
    Surely the UK Govt only has to look across the Irish Sea to understand how ludicrous S24 is.
    Govt is essentially de-housing millions of tenants by forcing mortgaged sole trader LL out of business!!


    Have you heard of BICT Paul ? And partnership relief to alliviate SDLT and roll over capital gains I can put you onto a tax barrister who can assist

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    HMRC knocked at my partners house demanding s24 payment of 34k on income of 35k 😱 they didn’t even know about the tax and they are collecting it how many frantic landlords round the country are facing this he has basically said I haven’t got it what you going to about it the sa302 form is staggering how they can keep a straight face when sending them and this is at 25% I feel so sorry for mortgaged portfolio landlords who can’t incorporate as these tax bills are quite simply unaffordable

    • 20 February 2019 13:10 PM

    Such mortgaged sole trader LL just have to accept that their little party is over.
    They will need to drastically deleverage by relevant means.
    For many it will mean selling off all or most of their BTL properties.
    For those LL that have total taxable income including mortgage interest they will need to reduce that income to below £50000 to avoid HRT status.
    Most LL would be able to achieve this by selling up leaving just a few remaining BTL properties.
    There will be blood in the streets and your very true anecdote is a truly terrifying example of what is to come.
    We are talking about responsible and good LL here.
    It seems based on your example that LL will be forced to sell up.
    So where are all the former tenants gonna live.
    There certainly are not sufficient LL to take up the slack.
    It will probably be that many who are not currently tenants will be buying many of these former LL properties.
    Where are the tenants going to live as the majority of them are simply not in any position to be able to buy even if they wanted to.
    Blame the MMR.
    It is ludicrous that aspirant homeowners are prevented from taking out IO residential mortgages with no repayment vehicle in place.
    These products are now being offered to those over 55 so why not those as the start of their house ownership journey.
    IO residential mortgage terms should be unlimited with NO repayment vehicle to be in place.
    Of many homeowners would indeed set up a repayment vehicle but this would be voluntary.
    If LL and those homeowners over 55 have the facility to keep mortgage debt outstanding until death or going into a care home then so should new homeowners at the start of their ownership journey.
    This would put everyone in the same position.
    It would be who could afford the IO payments along with who could afford the the largest deposits to make purchasing more affordable.
    There is no point in being forced to repay mortgage debt.
    It can safely be left outstanding until death or care home requirements.
    Of course Govt doesn't want such mirtgages outstanding as there will be less equity to rob to psy for care home fees.
    The Govt needs peopke to have vast amounts of property equity available to be robbed from them by Councils to pay for and subsidise council care home ocvupants who aren't able to self fund.
    Mind you if Govt really thought about it they would do far better to convert current tenants to homeowners by allowing IO residential mortgages as at least there will some equity available in 40 years time whereas kerping them ad tenants will mean no equity to rob and therefore for the council to bear all the costs of care home occupancy by such tenants.
    Surely 50% of something to rob is better than 100% of nothing.
    MMR needs to be abolished to facilitate IO residential mortgages for homeowners.

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    • 20 February 2019 13:56 PM

    NW Landlord

    Yep know all about BICT.
    A strategy that despite what its advocates like Tony Gimple state is far from an accepted situation by HMRC.
    Those LL that will be able to use such a strategy will be subject to large costs and very few LL will be able to use such a strategy.
    There is also the extremely very large risk that HMRC will come a calling as a consequence of retrospectively determining that BICT is tax evasion.
    That is what they have done with S24.
    The precedence is there.
    BICT is simply not a viable anti-S24 solution.
    The only real solution is to deleverage.
    It just may mean that for many LL they will have to exit the conventional AST lettings market.
    There are other options such as selling up and buying a 4 bed property as a residence for cash or on a residential mortgage if supportable by income and deposit.
    Then taking in lodgers.
    No S24 taxes at all.
    Yes tax on lodger income.
    This is what I will be doing hopefully.
    Lodgers will give me the same if not more return than tenants.
    As yet there is no way of Govt or Councils to detect how many days a homeowner occupies one of their residential properties.
    With 4 bedrooms or fewer then there are NO mandatory HMO licensing requirements.
    Yes by reducing to one property that means the opportunity for CG is reduced.
    In the current housing cycle the chances of further CG is extremely doubtful for the at least the next 10 years.
    Yield is the new game in town.
    Any way that can be found to reduce taxes means lodgers are one of the new ways for conventional LL.
    There are other methods of avoiding S24 by changing the investment property types.
    FHL and SA are also ways of avoiding S24.
    Though Govt even now is looking at ways of hitting LL with FHL with more taxes.
    Many LL will consider these are far more viable strategies that BICT which is a far from guarenteed situation for years in the future.
    BICT is for those that have very deep pockets and don't mind the risk of a HMRC knock on the door years later for all those taxes avoided
    Most LL are risk averse.
    That is why they invested in property!
    Until S24 arrived it was viable.
    It isn't now.
    Or rather it is the AST lettings market that is no longer viable.
    There are other tenure circumstances that a LL could convert to without too many problems.
    A council had been booking SA as TA for it's homeless; a lot caused by S24.
    SA rates are substantially higher than AST properties!!
    There is more than one way to skin a cat.
    Of interest to note today that in PMQ today the PM announced the Govt was working in conjunction with Shelter to enable DSS tenants to be able to force LL to let to them.
    That will force even more LL to leave the PRS.
    Only an idiot Govt would work with Shelter who would prefer all private LL were abolished.
    How will Govt force a LL to take on a DSS tenant who by implication will very rarely be able to meet the business requirements of RGI and market rent levels.
    More dysfunction from an economically illiterate Govt but nowhere near as illiterate as a Labour Govt would be.
    A plague on all their houses.
    UK politicians are mostly clueless as to how the PRS operates.
    Forcing a private citizen to take on another private citizen as a tenant when not effective from a business perspective is simply bonkers.
    Almost a form of billeting.
    There you are Mr LL here are your compulsory tranche of HB tenants.
    You will house them or you will be double taxed or whatever.
    Forcing anyone to use their private assets for the use by other citizens on a compulsory basis is surely Communism in all but name.
    What might LL choose to do if taking on DSS tenants by private LL is forced on them by Govt!!??
    Few Lenders permit LL to take on DSS tenants even if LL wanted to!
    Will Govt pay the increased insurance premiums that DSS tenants cost LL?
    Will Govt pay for ALL losses caused by a rent defaulting HB tenant while the LL has to evict them!!??
    This as RGI won't be there to protect a LL from the losses as very few if any DSS tenant would EVER qualify for RGI.
    Many LL seek to minimise BUSINESS risk by ONLY letting to tenants who qualify for RGI.
    RGI is desperately required by LL due to the dysfunctional eviction and civil recovery process.

  • icon

    You get advanced clearance from HMRC to incorporate using BICT

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    • 20 February 2019 14:16 PM

    .Yep just like advanced clearance with being able to offset mortgage interest against income thay LL have been using as a business strategy since 1997.
    Sorry BICT is a very risky and costly strategy and is far from guaranteed by HMRC no matter what they might suggest.
    Believe me if BICT was affordable and viable most sole trader LL would have used the BICT strategy.
    It simply isn't for normal LL.


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