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How will new tax and loan rules affect the buy to let market

Chestertons Estate Agents

Despite a marked dip in the second half of 2016, rental prices have still risen by around 30% since 2010.


It has been a strong decade for UK property prices and rental incomes. Despite a marked dip in the second half of 2016, rental prices have still risen by around 30% since 2010. (Back in mid-2016 that figure was closer to 40%.)  Low interest rates and regulatory tailwinds have encouraged many landlords to increase the number of buy-to-let properties they own, while the UK’s economic and jobs recovery has helped to keep rental demand buoyant.

Yet the tide appears to be turning. New rules due to be implemented from April will phase out higher rate tax relief on mortgage interest for buy-to-let. The maximum relief for higher-rate taxpayers will ultimately fall to 20% in 2020.  The impact of the drop may be substantial.

“The tax changes that will start taking effect from April are understandably a huge concern for landlords and we believe it will have a far bigger impact on the buy-to-let market than last year’s 3% stamp duty surcharge,” says Richard Davies, Head of Lettings at London estate agency Chestertons.

More than half of buy-to-let landlords across the UK will be affected, according to an industry survey conducted by Mortgages for Business (MfB). The survey found that 60% said they would be affected by both the tax relief changes and the tighter affordability requirements laid down by the Bank of England’s Prudential Regulatory Authority.

As a result, many landlords have already taken action to lessen the pain – although some 10% of landlords still didn’t know how the changes would affect them, according to the MfB November report. The report found that just under a third of landlords surveyed held at least one property in a corporate structure, which are not affected by the tax relief measures. 54% of participants said they would make all future purchases via a limited company.  Other tweaks may also be advisable.

“In addition to looking at tax efficient wrappers for their portfolios, we have been advising many of our landlords on how they can mitigate the impact on their balance sheets by improving operating efficiencies and increasing rents where possible,” says Davies.

Yet changes to legal structures and profitability pushes may still not neutralise the impact of the tax change. Moreover, in the case of the former, moving a property from one form of ownership to another usually triggers a capital gains charge and stamp duty land tax.

Many landlords are therefore taking more decisive action. According to the survey, 21% of those landlords with more than 20 properties were looking to sell in the next six months.

Each asset class comes with its own particular risks, but buy-to-let property is especially vulnerable to government intervention. Moreover, with UK inflation now on the up, the risk of eventual interest rate rises cannot be ignored either. Another relative unknown is what pressure the UK’s Brexit negotiations (and eventual deal) may exert on UK house and rental prices. Perhaps it is little surprise that some landlords are already taking evasive action.

“Many landlords are seriously considering disposing of parts of their portfolio while the sales market is still relatively strong,” says Davies.

Buy to let mortgages are not regulated by the Financial Conduct Authority.

Your home or other property may be repossessed if you do not keep up repayments to your mortgage.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

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Nick has more than 20 years’ experience within the property research arena.

Nick Barnes

Nick Barnes

St Magnus House

020 3040 8406