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Landlords, all is not lost in the 2019 lettings landscape…

Recent changes to regulation and property taxation have put the staying power of many landlords to the test. So, as a new year gets underway, we consider whether 2019 will be more of the same. 

There are hundreds of articles, full of ‘facts and figures’, making predictions about what the lettings market has in store for landlords. So many, in fact, that it can be hard to distinguish the key ‘need to know’ pieces of information.

In this blog, we aim to break things down and address some of the possibilities…

Profitability of your property business

Many astute investors are drawn to property by the prospect of regular income, healthy returns and relatively easy acquisition.

As with any business, profitability is key to longevity, success and your ability to expand. However, profitability is also extremely vulnerable to peripheral influences. 

The latest quarterly landlords panel report revealed that 55% of private landlords believed that their profits had been squeezed by legislative, regulatory and tax changes. 

Many consequently expressed interest in selling at least one property during 2019, particularly those managing larger portfolios. Those not looking to sell otherwise showed little interest in adding to their portfolio.

However, despite confidence levels clearly struggling, the vast majority are still making a fruitful living from their lettings business.

Armed with sound advice in 2019, both new and established landlords may continue to enjoy profitability.

Rental yields and regional difference in demand

Rental yields can make or break profitability and should always be a key consideration when building your portfolio.

The quarterly landlords panel report revealed that average UK rental yields have fallen to a three-year low of 5.6%. On the other hand, outer London and the North East have seen increases.

Tenant demand affects yield and this too differs amongst regions. The East Midlands for example, have seen an 8% increase whilst demand in central London fell by 11%.

Such inconsistences have left confidence in the UK financial market at its lowest in five years.

There will always be highs and lows, as the current economic and political backdrop will continue to evolve. That being said, those willing to ride the wave can still reap rewards.

Regulation, legislation, taxation and reeling costs

Regulatory, legislative and tax changes have pushed up costs and given rise to concern in recent years. The National Landlords Association (NLA) have warned that excessive change could see many landlords giving up the fight.

The changes to mortgage interest tax relief, for example, will continue to impact upon landlords beyond the next 12 months. Landlords will only be able to deduct 25% of their mortgage interest under the previous system. Under the new system, 75% will qualify for the 20% tax credit.

The  NLA are calling on the government to refrain from introducing new policies for at least five years. Existing polices need time to bed in and their effectiveness should be monitored. However, it is impossible to know whether the Government will take these concerns seriously. 

We know the changes implemented up to this point have not always been in landlord’s best interests. However, the changes have given rise to a more resilient property market. A resilient property market is one that will, hopefully, be better prepared for whatever comes next!

Buy-to-let vs. Build-to-rent

Analysis conducted by Savills, for the British Property Federation, reveals that the number of Build-to-Rent homes under construction across the UK has increased significantly. This is thought to correspond with the demand for longer-term tenancies.

The professionally managed private rented sector is expected to continue to grow at a notable rate. As a result, industry experts also expect that individual landlords will decline in number.

However, as it currently stands, buy-to-let landlords still dominate the market, with far more accessible properties when compared with professionally managed developments which often target the more affluent portion of the rental market.

Home ownership rates continue to decline and research by property agents, Knight Frank, suggests that an additional 560,000 families are expected to be renting by 2025.

Consequently, there will remain a need for landlords to continue to supply quality properties to families and individuals with varying financial histories.

Will Brexit bring good or bad for landlords?

The truth is, nobody can say for sure whether life after Brexit will be better, worse or the same. As it stands, we can only speculate about ‘possible’ outcomes…

The good – the uncertainty associated with Brexit means many individuals and families are reluctant to buy property for fear of being trapped in an inert market. When faced with such a conundrum, renting is a far more attractive possibility. Therefore, the demand for rental property may well spike following our withdrawal.

The bad –  unemployment is a huge concern for many looking beyond Brexit and there is widespread unease when considering the ways in which our job market might be affected. Rising unemployment could spell trouble for landlords as tenants could find it increasingly difficult to meet their rental payments. This, in turn, will affect landlords’ ability to keep up with the financial demands associated with running a lettings business.

All is not lost

It is impossible to predict how the property market will change in time. It is the ‘nature of the beast’, so to speak. However, if you’re prepared to look at the bigger picture and give your investment time to grow, property can still deliver a great return.

Regulatory and tax changes don’t have to be the reason you give up on your property aspirations and the future may not be as bleak as you might think. There are plenty of opportunities that individual landlords can take advantage of with the right advice, guidance and planning.

Whether you’re a new or established landlord, we can support you throughout your venture and assist you with proactive and effective tax planning; identifying and taking advantage of opportunities to minimise your liabilities and maximise your investment.

To find out more about the services we offer to landlords, investors and developers, click here, or call us on 01480 426500.

If you’d like a comprehensive update on the current state of the lettings market and to pose your questions to some local experts (us included), register for a free place at our property seminar on 28th February 2019, here.

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