What’s in store for buy-to-let this year?

By 28th Feb 2018 Blog, Member Blog

From Stamp Duty reform and removal of tax relief to stringent new criteria on lending and the imposition of high energy maintenance costs, the past eighteen months have proven ruinous for many private landlords and the rental sector in general.

We saw increasing numbers of owners choosing to sell up and quit the market. Research for 2017 has shown that there was a 33%1 rise in buy-to-let house sales in March and April alone. A recent forecast by Savills, the estate agency, has suggested that the number of buy-to-let investors with a mortgage will fall by a further 27%2 over the next five years – a veritable death knell.

But now we’re into 2018, is it right to assume that buy-to-let in this country is finished as a profit-making concern? Or is there an argument to suggest that market conditions will dictate the need for its continued survival? Let’s find out.


From April 2018, interest relief on mortgage costs for landlords will be lowered by 25% to 50%. Previous rules had allowed for the deduction of mortgage interest and other expenses from rental income before tax was calculated, thereby helping landlords to pay off mortgages and maintain a respectable standard of profitability.

Under the new system, however, this relief has been reduced by 25% (as of April 2017). This will continue to be cut at a similar rate each year until 2020, when tax will be liable on entire rental incomes. With declared incomes rising (or set to rise) accordingly, therefore, many landlords have
been (or will be) forced into higher tax brackets, pushing up bills, decimating profits and leading to a sharp spike in sales (as we have seen). However, because the new tax provisions are only applicable to individual taxpayers, there has also been a major upsurge in landlords choosing to operate through companies over the past twelve months.

However, the costs of incorporation are proving untenable for many landlords (especially for those with small portfolios). The new budget legislation means that special purpose vehicle companies will now pay an increase in capital gains tax on property sales. 2018 may well be the year in which the distinction between ‘professional’ and ‘amateur’ landlords becomes increasingly pronounced. In fact, a recent study by Kent Reliance into buying activity amongst landlords has revealed that purchase growth over the past three months had been restricted to companies with a portfolio of more than ten houses, whilst those with less than five showed no growth at all.

Rising Costs and Fees

Other rising costs and fees look certain to accelerate this trend in 2018. Recent regulatory changes by the PRA have led to increasing restrictions on mortgage lending criteria for landlords with four or more rental properties.

Applications are now stress tested against a 5.5% interest rate and rental income is reviewed across entire portfolios to assess profitability. This means that applications can be denied if a single property is adjudged to be underperforming.

There is prejudice against poorer landlords (as opposed to larger limited companies), leading to a marked reduction in lending against so called ‘amateur’ speculators.

Energy Efficiency

Government guidelines require landlords to upgrade energy efficiency in all rented properties to a new minimum standard (from April 2018). This could leave owners with potential ‘up-front’ payments of as much as £5,000 per property to bring portfolios into line.

Many rented households and landlords are affected by the changes. There are growing fears that large numbers of limited income owners, already stretched to capacity by the heavy borrowing debts needed to invest in property portfolios, could be fatally crippled by these outlay costs, with or without a subsidised ‘Green Deal’ loan. There are suspicions that the cost of these improvements will be passed onto tenants in the form of rent increases. This would wipe out savings on energy bills, which the legislation is supposed to encourage.

Rent Increases

There’s a strong possibility of these rent increases becoming more frequent and more pronounced. There are approximately 4.7 million3 privately rented households in the UK at the current time. Recent research has estimated that an additional 1.8 million private rental homes will be needed by 2025 to keep pace with the realities of a faltering property market and the decrease in home ownership.

With a number of landlords choosing to abandon the market, however, rents across the private sector have already begun to rise. Over the past year the average increase was 2.4%4 (with rises of over twice this amount in certain, over-subscribed areas), as heightened demand is outstripped by plummeting levels of rental stock.

As ownership of rental properties becomes increasingly concentrated and the market continues to contract, there can be little doubt that landlords, buoyed by the ‘captive’ nature of increased demand and decreased availability, will continue to pass on the costs inflicted by ‘anti-landlord’ legislation to their tenants. Under such circumstances, any further punitive legislation would merely prejudice the
cause of ordinary renters, as opposed to the landlords themselves. Indeed, many have already argued that the decision to cap tenancy deposits at six weeks rent and ban letting agent’s fees is likely to lead to higher future deposits rather than lower.

In summary, there is a growing gulf between what the government hopes to achieve by legislating against landlords and the realities of a shifting market. 2018 could prove to be the tipping point.


1 ARLA Property Mark, 04 December.
2 Savills on 02 November.
3 The Department for Communitie


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