2020 Brings changes for Landlords

Landlords have had to contend with a layering of changes in fiscal and regulatory policy targeting the buy-to-let market since 2015.

They used to deduct all finance costs from their rental income and profits were taxed at their marginal rate. However, starting from April 2017 and phased in over a four-year period, tax relief for finance costs are being restricted to a basic rate tax credit. The phased reduction began with claimable tax relief reduced to 75% and continued through 2019 to 2020.

In the 2020 to 2021 tax year, landlords won’t be able to claim any tax relief on mortgage interest payments. Instead, from April 2020, they will receive a 20% tax credit on interest payments. In response, landlords are adopting a range of different strategies to mitigate the impact of these changes, ranging from rent increases to portfolio resizing.

Bargains to be had?

Auctions are a great way to add to a buy-to-let portfolio, with a wide range of bargains often going under the hammer. But as any shrewd buy-to-let landlord will know, there is more to buying property than simply turning up and making a bid.

Among the many attractions of buying property at auction is that purchasers avoid the conventional drawn out process of property buying, as the property is sold in a matter of minutes as soon as the hammer falls.

Be prepared

But before attending and bidding on property at auction, investors must conduct all necessary due diligence.

1) Have you carefully read the conditions printed in the catalogue?

2) Have you made financial arrangements to ensure you have a 10% deposit ready for payment on auction day, when the contracts are signed and access to the remaining 90% within 28 days?

Landlords looking to increase holdings

One in seven landlords intend to expand their buy-to-let portfolios in 2020, according to research, with the North West emerging as the most tempting region.

The study found more than one in five landlords (22%) plan to buy in the North West, beating the South East and Yorkshire & The Humber, which 16% of landlords are targeting for new properties.

Regions reporting a higher proportion of buyers than sellers in the next 12 months included the East and West Midlands plus the South West and North East.

More than two out of three (68%) of buyers plan to fund their next purchase with a buy to let mortgage, according to the research.

Less than a fifth (18%) will release equity from existing properties to buy more rental properties, although 23% of landlords with more than 11 properties plan to fund purchases this way.

Future looking bright for the majority

Eight out of ten landlords (84%) say they will expand their buy-to-let (BTL) portfolio over the next 12 months, according to a recent report.

In a report entitled ‘The Mortgage Lender: Buy to let: The Landlord Experience’, conducted by One Poll with 100 landlords, half agreed that tax changes have reduced the number of private landlords.

However, only 1% said they think that has led to an increase in quality of rental property.

It also highlighted that only one in eight landlords had arranged specialist tax advice to help them manage their portfolios while only four in 10 used a specialist buy-to-let mortgage broker when arranging borrowing.

This is despite 45% stating that they already owned between two and four properties.