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Why BTL tax hikes are growing interest in ex-local authority properties

by: Carmen Reichman
  • 16/03/2017
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Why BTL tax hikes are growing interest in ex-local authority properties
More investors are looking to former local authority properties for their buy-to-let portfolios, after yields were crushed by the government’s tax reforms, brokers have said.

Requests for finance for ex-local authority (LA) properties, traditionally a cheaper alternative to private flats, have started to pile up on some brokers’ desks.

Yet financing difficulties have traditionally held the market back, with many lenders turning their backs on the properties for a variety of reasons. So is there a boom and what’s behind it?

“With the new tax changes imminent, astute landlords are always looking at ways to maximise their returns,” said Buy To Let Club managing director Ying Tan, who said he has experienced an influx of ex-LA requests in the past year.

“Ex-local properties provide better yields due to the strong demand for rents and competitive prices. We expect this trend to continue as yields get squeezed,” he added.

Recent government reforms introduced an array of additional charges for landlords, affecting the opportunity to earn a good living from their buy-to-let business.

Last year a new 3% Stamp Duty surcharge was introduced on second homes, followed by a toughening up of lenders’ underwriting criteria phased in from January.

From April tax relief on mortgage interest payments will be phased out over the coming four years, meaning a landlord now claiming 40% in tax relief will only be entitled to the basic rate of 20% by 2021.

Research suggested a higher-rate taxpayer would see their returns obliterated once their mortgage interest hits 75% or more of their rental income as a result of the changes.

Lender hassle

Nevertheless, ex-LA properties have proven to be a nightmare to finance in the past. Only a small number of lenders are open to doing deals on the properties, with issues such as the materials used to construct the buildings, the surrounding area, neighbours and whether or not there is outside balcony access all weighing against a financing deal.

This is precisely why Plan A Mortgage Brokers managing director Adele Turton believes she has not observed any great interest in ex-LA property. Instead, landlords looking for yields have turned to multi-units, she said.

This trend was not new, she explained, but more and more people were being pushed towards the types of properties in light of the tax changes.

“A lot of people have been interested in it for a long time but [were put off] because there is more legislation and more hassle involved. But with the tax changes and the incoming cuts to mortgage interest tax relief people are looking to maximise the [gains]. Houses in multiple occupation and multi-units are how you can do it,” Turton said.


St Georges Finance managing director Adrian Dadds said he had not seen a rush for the properties either lately, although he had observed increased interest a couple of years ago.

For him there has been a trade-off: more lenders have come into the market therefore prices have gone up and interest has waned.

“Lending is not as straight-forward but a lot more lenders are willing to lend on them now than there were a couple of years ago,” he said.

“A few years ago there was a massive difference in price between private flats and ex-local authority. Now a two-bed in Wandworth Common can cost half a million pounds, it’s a trade-off.”

Dadds said he currently receives about one enquiry a month for ex-LA financing. Despite this, he agreed there was “definitely interest from people” in the types of property.

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