60% of landlords believe new tax changes will affect them

60% of landlords believe new tax changes will affect them

Results from the latest Property Investor Survey conducted by Mortgages for Business reveal that 60% of landlords now believe that they will be affected by the forthcoming changes to both income tax relief and stricter mortgage affordability checks.

The survey, carried out over a two-week period in November, was sent to MFB clients and advertised across social media and landlord forums. In total 283 landlords responded to questions regarding their portfolios and how they were financed.

Although 60% of respondents felt that they would be directly affected by income tax relief changes, 29% said they wouldn’t. It is thought that these landlords are predominantly likely to be a mix of basic rate income tax payers and landlords who operate their portfolios through limited company vehicles which are subject to corporation tax.

David Whittaker, CEO at Mortgages for Business said: “The percentages feel about right for the market in general and it’s certainly been a tough 18 months or so for landlords, so it’s encouraging to learn that the majority are getting to grips with changes that will dramatically alter the way they operate.

Almost incredibly, 11% of landlords said that they still didn’t know if the changes would affect them directly and one respondent was totally uninformed. Mr Whittaker commented:

We are still encouraging landlords who haven’t already taken professional advice on the matter to do so ASAP, as some may find that the new formula will tip them into the next tax bracket leaving them worse off. The new regime starts in April, so there’s not much time left to make strategic decisions and take action.”

The results compare well with investor understanding of the new Prudential Regulation Authority (PRA) guidelines on buy to let lending, again with 60% of respondents saying they understood the impact these will have on how much they can borrow. A further 25% said they partially understood the implications of the PRA guidelines.

From 1st January 2017, buy to let lenders have been obliged to tighten their affordability calculations in recognition of the increased tax burden being imposed on landlords borrowing personally. Worryingly the survey found that 9% of respondents did not know how the revised affordability calculations would affect how much they could borrow and 6% were completely unaware of the new guidelines, despite wide media coverage on the topic.


The survey also found that landlords are continuing to move toward incorporation, with 32% of respondents owning at least one property in a limited company, up 2% on May 2016. This shows that landlords are thinking seriously about how to adapt to market changes and maximise their returns, although it is portfolio landlords (i.e. those who own four or more mortgaged properties) who lead the a way in this regard.

When asked whether future purchases would be made personally or using a limited company, 54% opted for the just incorporated route and 16% said they would use both. The remainder was split down the middle between those who said they would continue to borrow personally and those who had yet to decide how to proceed. These figures correlate well with our Limited Company Buy to Let Index, which in Q3 2016 showed that 63% of all new BTL mortgage applications for purchases were made by landlords using corporate vehicles.

Five year fixed rate mortgages were found to be the most popular product type over all with 34% of respondents expressing a preference for this category of loan, a tremendous return to form after falling popularity in previous surveys. This is clear evidence that lenders’ focus on competitive pricing of five year fixed rates has been successful in attracting landlords keen to maintain some certainty of cash flow following a year of economic turbulence and growing speculation that interest rates and inflation will rise next year.

Despite a tougher operating environment, the proportion of landlords seeking to expand their portfolios rose to 45%, up from 41% in May 2016. This suggests that most are willing to absorb the increased costs, adapt strategies and remain in the property investment market, which still provides better returns than most alternative asset classes.

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Latest Comments

Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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Christian Donovan
Christian Donovan 18 Aug 2017

The write-down on house values, combined with the fall in the GBP saddled the fund?s property portfolio with a 1.4% loss in the second quarter. The shocking amount of $240 million.

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Samantha Goodman
Samantha Goodman 11 Aug 2017

Interesting point of view.

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