Skip to main content

Buy-to-let investors 'could face losses'

New tax changes could leave more than a million buy-to-let property owners facing a loss on their investments, according to a new study.

From April, landlords must pay a higher stamp duty when buying property, and from next year they will get a reduced tax allowance.

The intermediary mortgage lending association IMLA suggest tax increases aimed at investors  won't reverse growth in PRS /  buy-to let  , though slowing of growth in buy to let sector will be felt .

Though ,Further evidence is emerging of the pressures that are building on buy-to-let landlords as a result of the Government’s tax increases.

Even a modest rise in interest rates would force losses on property investors in 70pc of locations, new figures show, while more landlords have come forward to say they will sell their properties or raise rents in response to the abolition of tax relief on mortgage interest and the new stamp duty penalty.

The research found that today’s average profits for landlords of about £3,400 a year would turn to a loss of more than £300 if mortgage rates rose by 2.5 percentage points by the end of the decade 

How new taxes and interest rate rises would decimate profits

Buy-to-let could become unprofitable in seven out of 10 towns and cities by 2020 if interest rates were to rise by 2.5 percentage points, according to data.

Using current house price, rent and mortgage data, the figures showed that landlords with 40pc equity in their property and a mortgage currently fixed at 3pc for three years would be making an average annual loss of £325 by 2020.

The data, provided by Property Partner, a “crowdfunding” website and also known as alternative investment , covers more than 100 of Britain’s largest towns and cities. At present, landlords’ average net profit is calculated at £3,419, falling to £2,555 by 2020 even if mortgage rates remained at 3pc, thanks to the phasing out of mortgage interest tax relief. A 2.5 percentage point rise in mortgage rates would be enough to produce the £325 loss.


Investors in some towns face bigger losses. In Salisbury, landlords currently make an average annual profit of £2,200, the data shows.

By 2020, with both a cut in mortgage tax relief and a 2.5 percentage point rate rise, they would make a loss of £2,984 a year – a swing in fortune of £5,184.

In Cambridge and Winchester the reversal in fortunes would be even greater. In Cambridge the average profit today is £4,257 but would swing into the red with a £2,418 annual loss in 2020.

In Winchester an annual profit today of £5,835 would be wiped out and landlords would face an annual deficit of £2,169. Fewer than one in five towns and cities will offer a net rental profit of more than £100 a month by 2020, according to the data.

Mortgage tax relief blow

At present landlords can claim for interest on buy-to-let mortgage payments when they complete their tax return, allowing them to offset mortgage interest against rental income. Changes are being made to this system gradually from April 6 2017, with full implementation by 2020.
In effect, landlords will be taxed on their turnover rather than profit. 
Chris Norris, head of policy at the National Landlords Association, said: “These changes are going to drastically increase tax bills and running costs for landlords. “If landlords want to stay in the market, they won’t have any choice but to increase rents, although this could be very difficult. We also expect a considerable number to exit the market over the next five years.”

Will mortgage rates rise?

Interest rates will remain at their record lows until 2019, according to recent forecasts.
Mark Carney, the Governor of the Bank of England, said this month that an “unforgiving” global environment was likely to keep rates at a record low of 0.5pc for longer than previously expected.
The prediction had been for a rise in Bank Rate in December this year or January 2017, following the first rate rise in the US for nine years in December last year.
However, following fresh economic gloom earlier this year the money markets now imply that the first increase will come in August 2019. In recent months fixed and variable buy-to-let mortgage rates have reached new lows, because lenders have cut their rates before April’s tax changes take effect.
There has also been a rise in the number of buy-to-let loans on the market, from 823 in February 2015 to 1,288 this month.
Rachel Springall of, which collates rate data, said that while rates were low at the moment they were expected to rise eventually. “The buy-to-let market has been thriving not only from low interest rates but also from an abundance of options for prospective or existing landlords. Lenders have been locked in a price war to win over borrowers, meaning rates on buy-to-let deals have fallen to record lows.
“But any prospective landlords need to consider future costs such as interest rates rising – as they will eventually.”

Further Reading

Chinese authorities shut down microblogging accounts belonging to a real estate mogul

FT first 'Rightmove maintains grip in battle of property portals @onthemarketblog

Foxtons high street estate agent facing landmark claim for £2million from group of 55 landlords

Kettering high street letting agent jailed for ripping off tenants and landlords

Estate agent Sterling Estates fined for illegal display board on Common Lane, Kings
Langley by Dacorum City Council

Class War protest outside Kennington Road London High Street Estate Agents Reed and Rains

Antonio Banderas's £2.4million Huf Haus Surrey

Britain's most energy efficient smart homes and , UKs newest & tallest sky scraper building

Countrywide PLC, CWD revenue drops, pressure from Online Estate agents Alison Platt CEO under pressure

Melanie Griffiths promotes the property for sale

Spectre of facing Spanish fraud trial: Sean Connery's wife accused of 5.5 million pound property tax swindle

A MILLIONAIRE Cyber-stalked a property developer who he thought was seeing his girlfriend

GeoPhy Exodus from EU may spark correction in the rental market

Brexit , investor, impacts on the property market overall and on aggregate consumption in the economy will be limited. what Brexit means UK House prices

Spanish house prices 2015 see rise highest rise 2007 crash , stabilisation of housing market,

Robert Durst Real Estate develeoper , Indicted on Weapon and Drug Charges in Louisiana

Drug Lord Escobar’s Miami Home Demolished , mansion property of the devil dissapearing

How BlockChain may solve fraud in Real Estate property industry #CRE

Private palaces: Russia moves to hide property data

Iconic Building Lincoln House [Former Maharajah Palace and US embassy ] sold to business tycoon $113m

Wales hotel that was the scene of a quadruple murder has sold for £150,000