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Landlords considering longer-term and more options to remain profitable – poll result

  • 11/03/2019
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Almost two in five buy-to-let landlords are looking to hike rents to remain profitable since the tax changes, whilst more than a third are also taking into account other options, such as getting a new accountant, cutting costs or buying yielding assets.


Mortgage Solutions’ latest poll, sponsored by Bank of Ireland, asked brokers how the majority of buy-to-let landlords are staying profitable since the tax changes.

Hiking rental payment was chosen by 38 per cent of brokers, while 19 per cent opted for cutting costs. Only eight per cent answered buying better yielding assets, whilst only three per cent of brokers said that landlords may get a new accountant to remain profitable.

However, around 32 per cent of brokers looked at all the available options.

Iain Smith, head of intermediaries at the Bank of Ireland, said that landlords are finding the buy-to-let market challenging due to the various regulatory and tax change starting to bite.

He added: “This survey demonstrates that landlords are looking at all of their options to stay in the game and remain profitable over the longer term.

“Many will seek out expert help and advice, which of course presents a great opportunity for forward thinking intermediaries to position themselves as the go to professional to help safely navigate landlords through these challenges.”


Buying properties through limited company

Ray Boulger, senior mortgage technical manager, said there has been a move by some landlords to switch to better yielding assets, reducing exposure in high priced areas where yields tend to be low and buying in the North and Midlands.

He added: “This is probably at least as much about taking a view on the property market as the tax changes.

“Some landlords who were happy to accept a below market rent, perhaps to help retain good long term tenants, will have had scope to increase rents but those already charging the maximum the market will bear risk voids by increasing the rent, which will make their situation worse.

“Other strategies not offered as an option in the poll include buying new properties through a limited company and reducing gearing by selling properties most adversely affected by the income tax changes, i.e. highly geared ones.”

Greg Cunnington, director of lender relationships and new homes at Alexander Hall, said he is seeing a notable uplift in new BTL changes being done on a limited company basis, which is another result of the various tax changes in this sector.

However, Cunnington said he is not seeing landlords looking to hike rental payments to remain profitable since the tax changes.

He added: “A lot of our landlord clients are quite vanilla landlords with one or two investment properties and are looking at these now as a more long term investment, with more and more clients looking at repayment options on their buy to let mortgages, and seem quite relaxed on the tax changes.

“That could potentially change once the tapering kicks in further and more clients notice a dwindling of their profits, and potentially having to pay to retain their investment properties however.

“I am not surprised at the low number for a new accountant, but I hope this is meaning ‘new’ and that most landlord clients are ensuring they have received tax advice from an expert. We have set up relationships with some accountancy partner firms to ensure all of our clients can receive this advice.”

Maxim Cohen, chief executive of The UK Adviser, said that the small percentage of brokers who considered getting a new accountant after the tax changes suggests that there may be an education piece to be done with BTL landlords to ensure they are aware that specialist advisers can help them with tax issues.

He added: “However, another simpler answer could be that they are happy with how their accountant is currently handling these tax issues.

“With the new tax changes beginning to affect buy-to-let landlords’ profitability, we are seeing more accountants acknowledging that in order to offer the best service for their BTL landlord clients, they must be able to adapt strategies specifically for the property market.

“In order for accountants to do this they must not only ensure they are up to speed with the history and changes within the buy-to-let market, but also make sure property tax issues are a specialty within their services.”

He said that with the BTL tax changes taking their toll on landlords, he has seen many working with his advisers and accountants to turn their portfolios into limited companies to allow for certain tax reliefs.

He added: “We expect to see this continue as landlords try to find solutions to stop their profitability being compromised further. This in turn will highlight a greater need for accountants to administer these changes seamlessly for landlords alongside advisers – again reinforcing the message that accountants need to educate themselves on the property markets to best serve their clients”.


Landlords with long term tenants do not put rents up

Liz Syms, CEO of broker, packager and network Connect for Intermediaries, said that many landlords with long term tenants have not put their rent up for years, as they have been happy to have a good consistent tenant in their property.

She said: “However, this often means that the rental income they are charging has not kept up with market rates. With increasing costs, some then have recognised, and in some cases reluctantly, that they have the opportunity to cover some of the increasing cost by increasing rents to current market levels.

“I think that investors who have used an accountant for some time may not think that they need to seek specialist advice as they have a trusted long-term relationship with their current accountant. For experienced property professionals, we have definitely seen an increase in diversification and looking at high yielding assets such as HMO and holiday lets.

“We have also seen investors looking at increasing capital growth through refurbishments and development. In a nutshell, the professional property investors are using a range of tactics and adjusting their business strategies to adapt to the new market and continue to run a successful property business.”


Landlords should maintain capital reduction

Dominik Lipnicki, director of Your Mortgage Decisions, said that the recent attack on BTL sector will have an effect far beyond the finances of the landlord.

He added: “Changes in regulation, accounting, letting agent fees and the introduction of the Selective Licencing Schemes, all come at a price.

“The obvious immediate response will be to increase rents and with less properties committing to the rental sector there is already upward pressure and consequently some of these costs will ultimately be born by the tenant. Skiing downhill, the next quick fix is to delay or dumb-down repairs, refurbishments and renovations.

“Landlords are an easy target to knock but the over all standard of rental accommodation in the UK is of a very high standard and with a previously attractive market to investors there was also great supply and flexibility.

“Squeezed margins will of course result in a reduction of investment and whilst the essentials will be maintained due to the high level of regulation, some of the non-essential repairs may well be delayed or stopped which is a shame for tenants meaning that possible white goods are replaced by cheaper models or even second hand ones and redecoration cycles might well be extended.”

He also said that another short term fix which solves cashflow and profitability today, at the expense of tomorrow, is for landlords to maintain an interest only approach to their funding as opposed to capital and repayment.

“With historic appreciation levels in property an interest only approach has worked but with a less buoyant future, I believe landlords should be covering all bets and maintaining capital reduction ensuring they have a profitable business for the future,” he concluded.

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