As landlords become increasingly dependent on rental incomes, many are finding themselves at the mercy of tax hikes, a spike in void periods and jobless tenants.
Property investors in the north of England will have to ride the storm brewing in the UK’s private rental sector (PRS) as they face rising taxes and the risk of mounting arrears from tenants. Eight of the ten cities with the greatest increases in Universal Credit claims are located in the three regions where landlords are the most leveraged, new research has found.
Since April 2017, the Government’s phased reduction in tax relief on buy-to-let mortgages has squeezed landlords’ profits. This means the costs that landlords can offset against their tax bill have been radically reduced, which could result in some being forced to sell up if their income falls because of unpaid rent.
The largest recent jumps in unemployment are concentrated in the North. Research by the think tank, Centre for Cities, showed that the number of people claiming unemployment benefits increased most significantly in Blackpool. In April, 8.9pc of the city’s population claimed benefits, a 3.4pc hike since March.
A survey by estate agent Hamptons International indicates that the area where the highest percentage of investors have buy-to-let mortgages is the North East, where 67pc of landlords who have bought in the last three years are mortgaged.
The second highest is the North West, at 65pc, followed by Yorkshire and the Humber, at 60pc. These figures are in marked contrast to a national average of 54pc.
Landlords hampered by ban on evictions
The lockdown and housing market freeze have intensified the pressures on landlord incomes. For seven weeks, it was extremely difficult to let property to new tenants because viewings were banned. In April, the average number of days taken to let a home in the UK jumped to 29, an all-time high since the Hamptons lettings index began in 2013.
Although the housing market has reopened, many landlords are still handicapped by the ban on evictions introduced by the Government in March to prevent tenants from becoming homeless during lockdown.
Despite the fact that the ban on evictions is scheduled to end on June 25, the Government has indicated it could be extended, but meanwhile a growing proportion of landlords are stuck with properties that produce no income.
Max Armstrong, of North East Property Investments (NEPI) points out that some landlords themselves have been made redundant or furloughed and are now heavily dependent on their rental income. More landlords, he said, are trying to sell up but are faced with having to agree to large discounts.
Mr Armstrong tells of one landlord who was about to complete on a sale before lockdown, but the buyer is now demanding a reduction of 23pc off the intial asking price, something that would push the seller into negative equity.
Shortfall in universal credit
However, some landlords in the North are still suffering from the hangover caused by the 2008 financial crisis and the consequent house price crash. In Hartlepool, says Mr Armstrong, people were buying for £60,000 or £70,000 in 2007 and now the same houses are not selling for £20,000.
The choice now, he continued, is either to board up the house and pay council tax or hand it back to the bank. He believes the problems will only get worse and is concerned not for the present but for the time when government support ends. People on furlough leave may not realise it at the moment but their jobs could disappear, resulting in a jump in arrears.
The situation could become very difficult for landlords if unemployment rises in areas with higher rental prices, such as London and the South East. The Housing benefit element of Universal Credit covers only the cost of renting the cheapest 30pc of properties in any area, so renters paying average prices face a shortfall.
According to research by Shelter, the housing and homelessness charity, the gap is £400 per month in England for a two-bedroom family property, rising to £1,227 in London.