The National Landlords Association has stated that the number of landlords looking to sell has more than doubled since July 2015.
There are two main reasons for this being used, the first reason is down to stamp duty. As much as I agree this is a negative, this has more to do with people looking to buy rather than sell. If you are selling, the additional 3% has no bearing on that process.
The second reason however is much more valid and this is due to the fact that claiming for mortgage costs from April will be reduced and continue that path until 2020/2021 at which point anyone who is in a higher tax bracket will effectively only be able to claim up to half the costs or less if they are additional rate payers.
In July 2015 7% of landlords said they were going to sell, according to the NLA, this has now jumped to 16% of landlords.
Landlords who are heavily geared could really come unstuck as they may very quickly turn what is potentially a small profit into quite a sizeable loss. The other issue is that because the tax authorities now look at the turnover rather than the profit of the property business, the tax position is exasperated. Remember that you will be given a tax credit for any mortgage relief, it is not reducing the level of income.
Using an extreme example, let’s assume someone has a portfolio generating £125k in rent a year but also has to service £100k a year in mortgage debt. We will also assume they are earning £40k a year from their day job. The HMRC will see this as the person is earning £165k (less other property related costs), so they have not only have they just been pushed into a higher rate band they have also lost their personal allowance and can only claim 50% of the £100k mortgage interest a year.
Clearly everyone needs to look at their own position to work out what is best to do. In the example above clearly something needs to be done!
This will also be one of the main reasons people have stopped buying properties as well. In fact the NLA reports that 84% of existing owners have no intention of adding to their portfolios.
The reason again is pretty clear. Adding to the position above will just make matters worse and even if they buy new properties in a limited company, the cost to extract hose monies in the form of dividends could be just as much as they would pay in normal income tax!
I know I say this often but it is so important to establish your own tax position before doing anything more.
Is there an opportunity here?
Well in a word, yes. If there is less stock to rent out and demand continues to grow that will mean one thing, rents going up. So if you are in a healthy position today then rent increases could potentially minimise the impact of reduced mortgage interest relief.
Also depending on your situation, we may find prices actually starting to drop more broadly and this could be an excellent buying opportunity.
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