In 2015, the UK government launched a campaign of measures giving priority to the interests of first-time buyers over that of buy-to-let (BTL) investors. Since that time, BTL investors have weathered a sea change in the market that has introduced the following constraints:
- Higher costs, greater complexity, and more stringent regulations
- More strict underwriting criteria
- A 3 per cent stamp duty increase
In May 2017, the Financial Times Advisor published a comprehensive special report designed to give the UK’s BTL investors a range of expert opinions—in the areas of law, finance, and brokering—on the full impact of the changes.
Sharing our notes
There is consensus that the tax and legislation changes have implications for buy-to-let investors at all levels of complexity, Besmove has identified the top implications for the houses of multiple occupation (HMO)* investor:
- Tax and interest: Landlords are now restricted from offsetting finance interest against rental income.
- Wear and tear: Since April 6, 2016, landlords no longer claim 10 per cent of the net rent as ‘wear and tear’ allowance for furniture and equipment provided with a furnished residential letting. Now, they can only deduct the actual costs they incur replacing furnishings in that property.
- Price of security: Changes to BTL lenders’ assessments and stress test rates could set deposit thresholds higher.
- Bulk benefit: HMO operators will do better than single occupancy operators because the forecasted and inevitable rise in rents can be shouldered across tenants rather than absorbed by single tenants.
- Limited company option: Multiple property homeowners may mitigate penalties by incorporating properties into a special purpose vehicle (SPV), a form of incorporation (note: this requires careful consultation with mortgage and tax professionals)
- Shifting down: Some experts suggest the changes have unduly affected higher-value properties and suggest investors diversify their property portfolios to a combination of types.
- A little help: Increasing underwriting standards means investors will need to rely more on brokers and other professionals to get them through the process quickly and without complication.
*Link here for a detailed breakdown of HMOs and complex buy-to-let scenarios.
Where from here?
With the buy-to-let environment now having to operate more like a business than a lucrative hobby, investors are compelled to run increasingly lean, efficient operations. Besmove has the property management experience and resources to deliver the greatest possible return on your rental properties with the following promises:
- We know London’s BTL territory
- Our services can be deducted from your tax bill
- We track your receipts and expenses so you don’t have to
- We offer up-to-date information on the BTL marketplace
- We stage and market your property for maximum return
- We contract only experienced and trusted tradespeople