Landlord tax changes spark remortgage surge

Changes to the way landlords report tax, including new levies and reduced tax relief, are already hitting home. New survey data has revealed how they have deterred many would-be landlords from entering the market, but also how existing landlords are remortgaging their properties – a move that could mean more risk in the long-term.

Lower activity

Data from Connells estate agents reveals that buy-to-let properties accounted for just 7% of valuations in April, down from the five-year average of 13%. Separately, data from the Council of Mortgage Lenders (CML) showed that the value of buy-to-let mortgages fell by 79.5% between March 2016 and March 2017.

The rush to buy ahead of the introduction of a 3% Stamp Duty surcharge last year has skewed the data somewhat. However, experts from Connells say that government measures, designed to reduce buy-to-let growth, are already putting off private landlords.

Smaller margins, higher tax bracket

Although government calculations estimate that 82% of landlords are not paying more under the new rules, many private landlords have found themselves bumped into a higher tax bracket. To continue to make a steady yield from their property, the National Landlords Association (NLA) says their rents will have to increase by 11%.

As an alternative to rent hikes, some landlords have opted to remortgage in a bid to reduce their monthly repayments and get better rates. The scale of this trend is shown in the proportion of valuations conducted for remortgage applications, which has jumped from just 6% of valuations in 2012 to 11% in 2016-17.

Long-term impacts

Private landlords must be alert to the potential fallout from these new trends. As fewer landlords enter the market, rents may rise again. While this is good news for the 21% of landlords the NLA says make no profit, too much pressure on tenants could result in missed payments or defaults. Managing the situation will be key to ensuring a steady cash flow while the market settles.

Similarly, reducing monthly mortgage repayments and seeking a new deal may ease short-term pressure. But if interest rates rise from their current low point, so will those bills – something that must be factored into long-term forecasts.

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