Challenges Facing BTL Landlords
For decades, many Buy-To-Let (BTL) landlords have cultivated a steady income from their
property portfolio. The Private Rented Sector has offered landlords a profitable business
environment that was tax-efficient, and unencumbered by high levels of Government-led
regulations. However, the landscape is changing for landlords in the UK.
Since 2015, there have been numerous changes to the way that landlords are taxed. The
effect, is that your margins within your existing portfolio are likely to decrease, and the cost
of acquiring new properties will significantly increase.
In particular, Section 24 of the Finance Act (no. 2) 2015 has become a cause of great
concern to BTL landlords. A key part of this legislation, is the removal of mortgage interest relief: a sweeping change, that the National Landlords Association (NLA) estimates will
amount to a loss of post-tax income in excess of £858 million from 2020 across the Private
As a result of this legislation:
- The NLA expect over 200K landlords to be affected by Section 24
- Higher Rate taxpayers will be impacted, and Basic Rate taxpayers may be pushed into a higher tax bracket
- Margins are likely to significantly decrease, necessitating rental increases
In addition to the removal of mortgage interest relief, BTL Landlords are now subject to a 3% increase in Stamp Duty Land Tax, introduced by the government in April 2016.
- This will have a serious impact on the cost of acquiring new properties
- Example: Stamp Duty on a £250K BTL property will now cost you an extra £7,500
There is increasing pressure on landlords to comply with regulations - costing you time and money. In fact, it is estimated that there are now over 160 separate pieces of regulation covering residential property lettings. Examples include:
- Right to Rent checks: failure to comply can cost you thousands
- Deregulation Act 2015: it is now harder to evict bad tenants
- Licensing: all UK landlords should prepare for mandatory licensing, which will increase your business overheads
Tougher Lending Criteria
If you’re looking to grow your property portfolio within the Private Rented Sector, you may
find it harder to borrow the necessary funds. From the 1st October 2017 the Prudential
Regulation Authority, part of the Bank of England, started to enforce tougher new lending
criteria on BTL loans:
- If you own four or more properties, your entire portfolio will be included in your affordability assessment.
- The assessment will now include; your' tax liabilities, personal income and risk from possible increases in interest rates.
- You may be required to provide proof of rent payments and a business plan to support a new application.
- If your existing portfolio does not meet the requirements, lenders may refuse your mortgage application.
Lengthy exit period OR Owned properties are low liquidity assets
You may not need or want to sell any of your properties at the moment - but what about the future? One of the biggest challenging BTL landlords, is the time it takes to sell a property.
- Selling a property is notoriously stressful and time consuming.
- If you need to quickly access the money you invested in your BTL property, you may need to apply discounts to the sale price, in order to speed up the sale
However, shares in the Somerset Estates REIT will be a much more “liquid” asset than a property investment, as they will be listed on the Stock Market.
If you’re a landlord in the Private Rented Sector, and are worried about the challenges you face, the Somerset Estates REIT may be able to help you maintain a high-yield, low-risk income from property investment.
Why Consider A REIT?