London Landlords Divided Over Buy-to-Let


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There is currently concern amongst UK landlords regarding the buy to let market. The concern has been brought about by several issues including a change to tax regulations, increased burdens brought about by new Minimum Energy Efficiency Standards (MEES) and cooling house prices reducing profits. The challenges are especially tough in London, of which our London EPC team are based.

In the capital, property prices are simply not rising enough to enable landlords to sustain sufficient profits to make investment in buy to let worthwhile. Many landlords in London, and other parts of the country, are considering putting properties up for sale rather than continue with the struggle.

Division over whether to sell

According to research conducted by Octopus Choice, 44% of landlords want to sell. The main reason for this seems to be the overall belief that while it may still be possible to make money right now, this will not be the case in the future. There are various reasons for this belief; 23% of landlords who said they were looking to sell said tax changes where the problem whereas 60% said the management of their properties had become too expensive.

It’s easy to see why London landlords are so concerned. According to Octopus Choice, a property purchased for £475,000 would need to meet a sale price of £590,000 eight years later, just so the landlord could break even. This is after any income from the property has been accounted for.

Tax changes for landlords

The tax changes which have been implemented by the UK government have proved to be a significant issue for landlords.  Landlords used to be able to deduct mortgage interest payments from taxable income before their tax bill was calculated. This was a major bonus for landlords as most of them have interest only mortgages. This benefit is no longer in place.

Since April 2017, the rules have changed and landlords can only get tax relief on 75% of mortgage interest with a 20% tax credit being applied to the rest. This first affects tax returns that are due by January 2019. This is only the start of the change. By 2020-2021 tax year the tax relief will have been completely replaced by a tax credit of 20%. This is a substantial financial detriment to anyone who has a buy-to-let property, especially in London where mortgages are so high.

The effect of Minimum Energy Efficiency Standards (MEES)

The cost of maintaining properties is one which landlords often underestimate, and is amongst the reasons that so many London landlords are currently looking to sell their properties. Following the April 2018 implementation of MEES, landlords are unable to rent properties out if the Energy Performance Certificate (EPC) rating is F or G. These ratings are the lowest possible, with the highest rating being A. From 1 April 2020 this will apply to all tenancies, even those that are currently in place. Given the financial implications of potentially having to make energy efficiency improvements to all properties, it may be the case that landlords consider having an energy efficiency survey carried out sooner rather than later, so that they can act on any problems using the advice provided. Doing so helps to spread the financial burden over a longer period of time.

The stagnation of the London property market

One of the biggest issues facing London buy to let investors is the stagnation of the London property market. London house prices are being hit by several different issues, two of the major ones being uncertainty over Brexit and higher stamp duty.

If investors cannot guarantee an eventual selling price that will cover their costs, purchasing is a major risk. The situation also means that many London landlords feel it’s a better option to sell now rather than face the same situation further down the line when profits will have been eroded further.

It does not seem likely that the situation for London landlords will become easier in the immediate future. The issues that have been causing concern, such as tax changes, MEES and house price stagnation, will remain. The fact is that investment in buy-to-let property in London has become a greater risk than ever. Investors are not able to ensure a selling price that will cover costs, after income has been taken into account. They are faced with higher tax bills and the cost of maintaining properties is set to continue increasing. It’s hardly surprising that almost half of landlords across the country, including those in the capital, are looking to sell.

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