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Landlords turn to rent hikes to protect portfolio profits

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  • 31/03/2017
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More portfolio landlords plan to increase rents to cope with the torrent of changes affecting the buy-to-let market than this time last year, research from Aldermore has shown.

A survey of more than 500 landlords carried out earlier this month revealed that 27% planned to put up rents to combat the Stamp Duty levy, changes to tax relief, instability caused by the EU Referendum and stricter lending policies.

This compared to 14% of landlords who planned to increase rents in response to market changes in 2016.

The findings showed that over the last 12 months, the weight of regulation, tax changes and the referendum result have finally come to bear. This month just 18% of those surveyed said they would not be affected by the changes. This compared to 52% the year before.

 

Liz SymsLiz Syms (pictured), chief executive, Connect for Intermediaries, said she was not surprised that landlords were now looking to rent hikes to protect their businesses.

“I can totally understand why landlords are increasing rents. In the past, if a landlord had a reliable long-standing tenant, they would be less inclined to put up the rent even if the tenant had been a resident for a number of years.

“Low mortgage costs allowed them to do this. It’s a balancing act between having someone in the property to look after it and provide a steady income, even if it is below market expectations, and upsetting the tenant with a rent hike, leaving the property standing empty.”

Syms said the pressure to cover extra costs brought about by the 3% Stamp Duty levy and lower profits because of tax relief cuts, was forcing landlords to reconsider their portfolio management approach.

“They will be looking at the margin between the current level of rent they are charging and market expectations, and if there is room, they will be putting them up to where they should be,” she added.

 

Commercial property opportunities

 

The research also revealed a shift in attitudes towards commercial property. When surveyed in March 2016, only 1% of landlords said they would move more or all of their portfolio into commercial investment. A year on, and this has risen to 9%.

“Commercial property sits outside the Prudential Regulation Authority rules and is subject to lower Stamp Duty costs so it has become an attractive opportunity for many brokers,” Syms explained.

Syms gave the example of a £250,000 commercial property which would attract a Stamp Duty bill of 2% compared to 5% if the property was a buy to let.

Semi-commercial property is also attracting landlords’ interest. If the landlord owns a flat above a shop, the shop element would be liable for full tax relief, while the flat would be subject to the new rules which will see tax relief for finance costs being phased out.

“Semi-commercial properties are also a softer way in to commercial property investment,” said Syms.

Mortgage brokers are beginning to beef up their knowledge in the commercial property space, as they see a rise in the number of enquiries from landlords interested in diversifying their portfolios.

Holiday lets, said Syms, also fall outside the PRA rules. “Brokers should consider getting their knowledge up to speed with this type of investment,” she added.

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