Wed 14 Mar 2018
During the last few years, the UK has seen a sudden, steep rise in rent prices across the board. There seems to be no end to the price increases for now, but what has caused this sudden change that is effecting thousands of tenants?
In the 2015 emergency budget it was announced that landlord's in the private rented sector would be, in increments over 4 years, be losing their mortgage interest relief. This would be in 25% increments over 4 years, the first being in 2017. Therefore by April 2021 all private landlords would have zero mortgage interest relief on their investment property(ies).
We know this can sound very complicated, but we will try and make this as simple as possible without the economic expert waffle and bankers blah blah.
As any other business should work, they pay their tax on the PROFITS they make, so income minus their overheads. This was the same for private lanlords. For example if a landlord has one buy to let property let out at £600pcm and the mortgage was £300pcm, they could only be taxed on thr £300 profit they made. In addition to this, they could also claim repairs and maintenence costs which would be taken into account.
The changes made mean that by the end of the four years, this landlord would now be paying tax on the whole £600pcm, rather than the £300. In addition to this they will also get no relief for property repairs and maintenance. As you can imagine, if a landlord has a portfolio of 6, 7, 8 or 10 properties, maybe more, then this is going to be a considerable hit to their profit margins.
If that wasn't enough of a kick, the income is also taken into account with the landlord's salary and is not treated separately, so this income from a property portfolio could take them over a new tax bracket, meaning EVEN MORE TAX COSTS!
Put yourself in the landlord's shoes, and you have to do everything you can to try and recoup this loss of money. The answer for newly purchased buy-to-let properties may be to purchase them in the name of a limited company, however properties currently owned cannot be transferred, so there would be a major stumbling block for current assets.
Of course, the obvious way to claw back the money you are anticipating to lose is to implement a rent increase. This is what we are seeing across the board. Two years ago, your average three bedroom terraced property in Chelmsley Wood would be around £600pcm. Two years on and you would be lucky to secure one of these for less than £700pcm.
A three bedroom semi detached property in Marston Green just down the road, two years ago would probably fetch £725pcm, now you would be looking at £800pcm or more depending on the condition.
This increase is only expected to continue as the amount of interest relief reduces the final 50% over the next two years.
The off-spin of the points discussed above is that many landlord's have decided they will not be making enough money on their investments, so have decided to cash in on any equity they have, and sell up.
With the abolishment of stamp duty for first time buyers, this has lead to an increase in the amount of those at home, or in rented accomodation looking for their first purchase.
With this influx, properties that were owned by private landlords are largely being snapped up by those looking to live in them. The knock on effect of this is that the stock available to rent is reduced, but the number of people looking doesn't. This competition allows landlords and agents to demand a higher rental price for their property.
This is another combination that has caused this steep rise in rental prices.
In a nutshell, landlords are being charged more tax, leading to smaller profit margins, which means rental prices are increased to claw back this money lost in tax. Combined with landlords wanting to sell for this reason, rental stock is low however demand is high.
This taxation increase on landlords in attempt to get more homeowners moved in has had an adverse effect for tenants trying to afford private housing.
If you would like any further advice on renting whether you are a landlord or a tenant, feel free to call us or pop in for a coffee.
*Please note these are experiences Ferndown Estates are describing in the general market as we know it and statistics may be different in your area.
"Firstly can I say how grateful we are to all the team at Ferndown Estates for finding our perfect property. We have a lot of work to do but we have already settled in lovely at Marston Croft where the residents are all friendly and very welcoming. The area actually a lot quieter than we imagined being so close to the railway and airport but it really doesn't bother us at all. "