I recently became a landlord in November when we moved out from London for schools.
Are any of you considering selling up, or putting rents up to cover costs?
The new tax rules seem to make it extremely unattractive to be a landlord now. With 40% of the rent going to tax, how can you make it work?
Then there are all the new regulations being enforced... the latest being the electrical cert. I wonder how many electricians will be cashing in on full rewires that don't need doing.
Then there's second property stamp duty.
It just seems the government is completely against private landlords, but surely the consequence is less rental properties and much higher rents for tenants, making it harder to save to buy their own place (if they want to) and less secure.
Our place is currently on a permission to let repayment mortgage, and we're making a £600pm loss when tax is considered. Moving to a BTL interest only might get us to a breakeven point, but is it then even worth it, given the hassle of being a landlord?
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On the latter part, no - probably not. An interest-only mortgage doesn’t really help in the long-term. If you want second property as an investment/secondary income then there are better/easier options for you.
The governement tax rules seem to target the private individual landlords. The big ones that setup Ltd companies to buy the properties under to avoid tax etc, will only become more prevalent and controlling of the market.
Buy through a limited company and you don't pay the same income tax.
The properties we've had the longest are still profitable even though they are held individually, because the mortgage is so low, relative to the value of the property and the rental income.
If I was making a £600pcm loss then I'd get out of that property quick smart- especially if you've been living in it.
The longer you have it rented the more likely you are to incur CGT on the sale.
Speak to an accountant.
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Either way....if the cost you you is anything more than short term such as void months...I’d dump it .
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One more thing- I do my sums based on 75-80% occupancy, even though in London we've never had more than a couple of days of void that wasn't related to a renovation.
Pays to be conservative with expected income- better to have extra you can use rather than have to scramble to pay out of personal finances.
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Its a £700k flat, so the £600pm loss is relative. We wanted to hold on to it for the kids. But maybe we sell before the 2 year mark when CGT kicks in and use the money to buy one under a limited company instead. Such a shame as its a lovely flat. My daughter was even born on the bathroom floor so has alot emotional attachment to us.
Any decent tax advisors anyone can recomend?
BUT......the point has always been Capital growth which is where the pay-off really is ;ie if net rental return was sufficient to do no more than wash it's own face and give you a bit of pocket money you are effectively holding a cost free assets that has appreciated astronomically over the last 20 years just by riding the market .
In a stagnant market or falling market then it's not such a great investment......Property tends to be a bit cyclical and ultimately ,if you are in for the long term ,it always outperforms alternatives.
An option is to transfer the property into a partners name who is maybe 20% tax payer ?
Make sure you keep all expenses spent on the property to claim back.
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If all the land lords/second home owners pulled out you honestly think there would be less choice and higher rents? Really? Thats just wishful thinking.
Even if properties were 50% their current value, how could a 22 year old with uni debts, get £25k together to buy a house, so they can accept that job in London?
I've been both a renter and now a landlord. People are niave if they don't see any benefits to renting.
Firstly for my flat I had to fork out £120k in savings, all from my own earnings that took years to save and alot of sacrifices made for. This covered the deposit, fees etc to buy, and £22k in stamp duty which I will never get back. I then spent £25k doing it up and about £3k in general maintenance over the 5 years we lived there. So I'm £150k in. The mortgage costs £1,600pm of which £900 is interest that doesn't go towards paying down the debt. The service charge is £300pm, so £1,900 in monthly cost total, of which £1200 are unrecoverable costs.
My tenants get to live in that same flat for £1,800pm, thats it. If anything breaks, its my problem. If they decide they want to move to another area, they just move. No need to worry about the current market value, whether they can find a buyer, estate agent fees, people looking around, redecorating to sell etc... oh yeah and they haven't had to layout £150k, which could have been earning them money somewhwre else, or maybe they just get to live an extravagant lifestyle and don't save.
Are you're trying to say renters don't get a good deal?
There is a need for private renting and the fewer there are the more rent will be, it's just supply and demand. Being a renter and hoping there are less landlord owned properties is like turkeys voting for Christmas.
We quite often get the urge to move someplace else but are put off by all the hassle and expense.
I know people who let and sub let and don't pay any tax on it.
(edit: I agree, if the market isn't rising you're better off selling)
Opposite side of the spectrum I have a friend who is a barman in a top London hotel. Him and his Mrs earn maybe £80k pa combined. They are both 34. They rent in Angel because they want to live in zone 1. They get to live in a flat they could never afford, even at half its value. If they couldnt rent or they were competing with bankers to rent the same property, they'd need to live outside London and the commute would consume 35% of their earnings.
Let's say for arguments sake landlords were made to sell their properties... that is only c20% of homes in the UK. Do people really think that is going to make homes more affordable? What are all the renters with no savings going to do? What are people with terrible control over finances and poor credit ratings going to do?
Home ownership is at an all time high at the moment c74%. Private landlords are at a 7yr low.
It's not landlords that are the cause of the high cost of ownership, its the number of people in the UK and therefore demand and low interest rates.
BTW I'm renting our current place so we could get my son in to the school we wanted and decided exactly where we want to buy our family home. I pay less in rent than the mortgage on this place would be, can move whenever we want and haven't had to layout anymore savings. Washing machine broke this morning, WhatsApp the landlord to fix, not my problem. Its great!
because the flip side of the argument is that other people in your brother’s age and circumstances might want to buy but the prices are higher due to less (than it would have) on the market. I think more property on the market will mean the prices will be lower, yes, at least it won’t go up as quick. If supply and demand is still a thing.
I agree there are 27 year olds that would like to buy. There are also 27 years olds that go out and buy BMW's on finance, spend all their money on nights out and expensive clothes, and then complain property is too expensive.
Anyway, all this to say landlords offer a needed services. Renting is good in a lot of situations. Landlords aren't the reason you can't afford a property.
And lastly, pushing landlords to seek alternative investments, will harm renters more than homeowners. If you dont believe me, read what happening due to making property a less attractive investment. https://www.forbes.com/sites/garybarker/2019/11/28/supply-and-demand-the-leaking-ship-of-landlords-and-tenants/
move the house into a LTD company. frankly unlikely to be worth it when you already own it, because you have to sell it to the company, pay stamp duty, and then mortgages are usually 1% higher
probably the best: some mortgages now have a low interest rate but a very high arrangement fee. AFAIK the fee is tax fully deductible, unlike the mortgage interest
BTL rates are higher. You would find it easier to make ends meet with an interest-only mortgage of course. LTV rates are lower too, 75% is about the max
best bet is to do the maths to see if it is a viable option long term: allow 10% of rent a year voids, 10% refurb, etc.
Here are the most common deductions in business models:
10.8%
Tax void
maintenance
Octa: I assume the £600 loss is because it's a repayment mortgage
Sorry, it's now 9 months from moving after which you lose the CGT exemption
Good luck to renters... that's all I can say.