Buy-to-let market remains strong in the North, despite worrying changes to rules and regulations
Is there a buy-to-let crisis? Tax and the rules for landlords explained…
The papers are full of pessimistic news items about the end of the prosperous buy-to-let market. But is this the reality of the situation?
Yes and no.
These are taxing time for landlords, pun very much intended.
Landlords have always enjoyed a significant tax relief on their buy-to-let income. That is, landlords have only paid tax on the difference between their rental income and the amount of mortgage interest they paid.
However, as of April 6, landlords will have to pay tax on their full turnover. Tax relief will be capped at 20%, even for landlords who pay 40 or 45% tax.
The move is expected to have significant impact on landlords’ profits, with some suggesting they will sell-up.
On the other hand, some trend reports are suggesting otherwise.
Mortgage lender Paragon said, in surveys they conducted, it seemed landlords were feeling more optimistic about the future now than they were three months ago.
In another shakeup to the buy-to-let sector, consumer buy-to-let is now regulated more heavily by the Prudential Regulation Authority (PRA).
New (PRA) rules came into play in January of this year affecting all buy-to-let mortgages (excluding those taken out by limited companies). These new rules affect the way lenders underwrite mortgages and, namely, the amount of rent a landlord must be able to make on a property, in relation to their mortgage repayments.
All lenders have a rental cover calculation and as a result of the PRA rules most have hiked theirs. In the past, landlords have generally had to achieve 125% of the mortgage repayment as rent (i.e. the mortgage repayments plus an extra 25%). In recent months most lenders have increased this to 145%. This means landlords have to prove they can achieve much more rent in order to get the mortgage.
As a result, many landlords are choosing to set up limited companies as to avoid the changes to tax relief by instead paying corporation tax.
What is the situation in Merseyside?
According to Your Move Magazine, landlords in Liverpool and the North West region as a whole can actually benefit from market conditions at present.
Liverpool and the North continues to offer many bargain deals when it comes to purchasing property. And indeed, in these uncertain times for the property market, landlords must look to areas where purchases are affordable and rents are able to rise. The North West region offers that.
According to figures from estate agent Your Move’s buy-to-let index, landlords in the North West achieved some of the highest yields in the country in January at 5%.
Meanwhile, the Merseyside town of Bebington was recently named the UK’s best place to live according to quality of life, suggesting that demand to live in Liverpool and the Wirral will remain high.
Emma Coffey, Head of Sales at Goldsmith Williams Solicitors, comments:
“It definitely isn’t all doom and gloom when it comes to the buy-to-let market. While things have become more complicated as far as rules and regulations goes, becoming a landlord can still be a very profitable move to make if you have the right team of professionals to help advise you.
“You will need to enlist the assistance of a good tax advisor, as well as property solicitors, to ensure you remain on track to make profits.”
Content correct at time of publication.