The majority of buy-to-let landlords own between two and four properties and 10% now use a limited company structure for their investments.
Research conducted by The Mortgage Lender into the buy-to-let (BTL) market has found that 80% of landlords have confidence in the future of this type of property ownership. Additionally, the same percentage are looking to maintain or increase the number of properties in their portfolios in the next 12 months.
However, private landlords have concerns with increased costs, greater regulation, property maintenance and tenants.
Increase in stamp duty
In April 2016, the Government introduced a 3% stamp duty surcharge on second properties which increased transaction costs for BTL investors. The impact of the change has led to a decrease in the number of approved BTL mortgages of 13% in 2016, 27% in 2017 and 11.5% in 2018.
The surcharge is levied in addition to the regular rate of Stamp Duty Land Tax (SDLT), which starts at 2% for homes worth up to £250,000, and rises to 12% for properties worth more than £1.5m. 51% of landlords think the additional stamp duty charges have resulted in fewer private landlords and 21% believe the charges have reduced the supply of rental properties.
28% think the increased charges have resulted in higher rents, while only 2% think the new charges have improved the quality of rental properties.
Increase in personal taxation
Many landlords will also face a substantial increase in their tax bills as the move from taxation on rental profit is replaced by a tax on gross income, due to come into force by 2020.
The study ‘Buy-to-let: the landlord experience’ revealed that 49% of landlords questioned agree that tax changes have resulted in a decrease in the number of private landlords and 25% believe that the changes have reduced the supply of rental properties.
31% think tax changes have resulted in rent increases, whereas only 1% of landlords think the changes have improved the quality of rental properties. Consequently, 16% are considering reducing the number of properties they own over the next 12 months.
Those aged 35 to 44 (35%) are the most likely to want to reduce the number of their properties in the coming year.
Increased regulation
In addition to increased costs, landlords have to comply with a wide range of statutory regulations. These include the’right to rent’, checking that the prospective tenant has the right to live in the UK and supplying energy performance certificates proving that a property has a rating of E, unless exempt.
Extra requirements include meeting data protection regulations, as a landlord is considered to be a ‘data controller’ under GDPR rules. Houses in multiple occupation (HMOs) now have to have a minimum room size of 6.5 sq.m. per person. Landlords are also responsible for electrical, gas and fire safety, as well as the housing health safety rating system.
18% of private landlords believe that increased regulation has improved the quality of rental properties.
Landlords’ concerns
The study results showed that the three main concerns are property maintenance, how tenants treat a property and how they behave. Landlords are fearful of damage to property and furniture, theft of fittings and unpaid utility bills.
Other concerns include the costs of property ownership versus rental income, regulatory requirements, collection of rent, finding tenants, property prices, market conditions and rent arrears of up to and more than three months.
With regard to the financial side of buy-to-let, only 15% of landlords seek specialist tax advice with regard to their rental properties. And only 42% of those who obtain a mortgage to purchase their properties use a specialist buy-to-let mortgage broker.
