Landlords consider portfolio restructure to tackle shock higher tax bills – Paragon

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  • 09/04/2019
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Landlords consider portfolio restructure to tackle shock higher tax bills – Paragon
A third of landlords received a higher than expected increase to their 2017-18 tax bills with half of these saying they would make changes to their portfolios as a result, Paragon has found.

 

The findings came from the lender’s PRS Trends Report for Q1 2019, which found landlords focusing on mitigating higher tax costs and improving portfolio affordability, rather than planning further purchases.

It noted that landlords have scaled back their buying intentions, reduced their reliance on mortgage debt and improved affordability by spending less of their rental income on mortgage payments.

 

Mortgage costs down

For example, the proportion of landlords looking to purchase property has fallen from between 15 to 20 per cent before the announcement of tax and regulatory changes in 2015, to just seven to 10 per cent today.

Average portfolio gearing – which measures the proportion of debt finance relative to a portfolio’s overall value – has also fallen from 40 per cent in 2014 to 33 per cent today.

Landlords who have three or more properties typically borrow 36 per cent of their portfolio value on average.

Meanwhile mortgage costs as a proportion of rental income are down from 30 per cent at the beginning of 2017 to 27 per cent in the first quarter of 2019.

This has been aided by landlords remortgaging onto lower interest rate and longer-term fixed mortgage deals.

This has been echoed by data from UK Finance which expects the buy-to-let market to be hit hard in 2020 with a 23% drop in remortgaging predicted.

 

Selling property or reducing borrowing

On tax, 58 per cent of the 200 landlords within the group surveyed reported an increase in their 2017-18 tax bill.

Landlords with three or more properties were more likely to report an increase than those with smaller portfolios, with an average increase in tax of £3,039 for those reporting a rise.

One third said the change in their 2017-18 tax bill was either a little or a lot more than expected, with more than 60 per cent confirming it was as expected.

As a result, 49 per cent of those who reported a higher than expected increase said they would make a change to their portfolio as a result.

The most popular measures included selling property at 24 per cent; increasing rent at 20 per cent and reducing borrowing with 19 per cent.

Paragon director of mortgages John Heron (pictured) said: “The shift in focus from portfolio expansion to financial strength has driven a surge in buy-to-let remortgaging, with lower interest rates and longer initial fixed periods helping landlords reduce finance costs and lock in greater certainty.

“However, it also extends the product maturity cycle, guaranteeing a reduction in the scale of opportunity to refinance buy-to-let mortgage deals over the next few years.”

 

 

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