31st
Jul 2015
The Telegraph recently wrote an article saying that the landlords should only be taxed if they are making profits and the new measures are distinctly unfair to those who are struggling. Buy-to-let profits are being eroded away by licensing and rental payment arrears.
Journalist Richard Dyson, reports that in April 2014, the Telegraph warned landlords that buy-to-let was fraught with danger because of the rising property prices, which in some areas, had caused significant reductions in yields, to a small percentage.
He also cited another danger in 2014, that as yields had narrowed and the lowest mortgage rates for some time came to be, if the rate should be increased then landlords would have a negative monthly cash flow.
Dyson utters the stark warning that rental rises have been drastically outstripped by property price increases. With yields increasingly being forced down it could become untenable for some landlords as the mortgage rates are starting to rise.
The government’s proposal to cut landlords’ tax relief on mortgage interest is a powder keg waiting to happen.
Dyson cannot understand why landlords should not be able to keep the tax incentive, as all other businesses do and be allowed to deduct costs of credit from their taxable profits.
If this proposal does go ahead then landlords will have to sit there and accept having to pay more tax, causing some to go into the red.
The nightmare scenario is landlords being unable to cover costs with the rent when mortgages continue to rise and making little or no profit.
If they cannot offset all of the mortgage credit costs against taxable income, there’s the very real danger of going further into an overdraft situation.
The government's reason is populist by its nature which appealed to voters in an effort to 'burst the buy-to-let bubble'.
Although landlords are being given a 'stay of execution' as the proposal is not tabled to go ahead for a few years yet, this interference in the marketplace could cause a sizeable implosion.
Numbers of potential investors are turning their backs on the marketplace, because of the reasons cited and lenders are becoming increasingly selective.
Dyson says that the government must seriously consider whether the proposal is the right way forward.
Richard Merrick, of PIMS, says: “Many amateur landlords could suffer at the hands of this proposal and overall everyone has three simple options.
"One, to accept the tax increases and to attempt to get on with it.
"Two charge tenants a higher monthly rent, which of course will only be afforded by good earners and put an even higher dependency on Social Housing.
"Three to sell up and get out."
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