Posted on: 27-08-2017 in Mortgage & Property
Buy-to-Let in the UK remains a viable investment for expats in the UAE because UK rents will continue to rise. Why? Demand for rental property continues to rise but the supply of properties is set to shrink thanks to a triple-blow of tough legislation forcing BTL landlords out of the market:
These three legislative attacks on the BTL sector have actually created the conditions in which rents will rise, by scaring landlords out of the market and reducing the amount of BTL properties in use – thus, by the law of supply and demand, pushing up rents.
Especially because of the mortgage tax relief changes, supply of rental properties is likely to fall, says FTadviser.com, as:
“Almost half of private landlords say they will withdraw from the market by 2020, with 21 per cent planning to sell all their rental properties, ten per cent aiming to reduce their portfolio and seven per cent hoping to switch to commercial property ownership.” (Ftadviser.com, April 2017)
“Some landlords are forced to sell their properties, others are stopped from expanding, and newbies hoping to enter the buy-to-let market struggle to do so.” (simplybusiness.co.uk)
“We need to remember that few landlords are professional property tycoons: two thirds in the UK are ‘accidental’ landlords … they tend to own just one rental property that they’ve inherited or are finding hard to sell, and they make a modest income once time and expenses are out.” (Gordon Rutherford, Head of Marketing, AXA Insurance)
“Tenants will have little choice but to compete for what properties are on offer. As a result we expect rents to rise faster than the pace of inflation next year, with growth tripling to three per cent by the end of 2017.”
(John Goodall, CEO Landbay, 2017)
Since the beginning of the 2017 tax year in April, landlords now controversially face a tax bill on their rental income that is calculated on the basis of revenue rather than profit.
In HMRC calculations prior to this, higher-tax band landlords could offset 100% of their mortgage interest payments against their profits. Now that amount will be reduced progressively to 0% in 2020, with a 20% tax credit available instead.
“The changes,” say The Telegraph, “mean that many landlords will pay more tax – and in some cases will be taxed on non-existent profits.”
The Government has said that 82% of landlords will suffer no financial loss as a result of the tax changes. But robust 2017 research from Axa/Taylor Main reveals that 40% of landlords believe that they will end up worse-off.
There was gloom and doom when Holborn Assets reviewed the news in October 2016 that half a million UK private landlords would face tougher taxes.
Since April 2016, 3% has been landed on Stamp Duty on BTL properties valued at over £40,000; going back to 1995, this was the fourteenth change to British Stamp Duty.
|Before April 1, 2016||After April 1, 2016|
Since the beginning of 2017, the Bank of England demands from lending banks that mortgages be rejected unless the borrower can prove that interest rates of up to 5.5% could be financially handled if necessary. 2016 had already seen TSB and Santander tighten up eligibility and loan caps.
Maybe you’re considering BTL in the UK as an alternative to a conventional pension. Many expats in the UAE do.
Professional help makes SUCH a difference in sorting out BTL affairs in the UK. Advisors have contacts and familiarity (if not mastery) of the way it actually works on the ground to get your hands on a BTL mortgage from the UAE. There’s hoops to jump through, but they are really not too bad if you’re taken through them!
And you WILL need help over the long-term (which is what a decent IFA will offer you) – BTL demands far more time and attention than a structured financial product; as Alan Higham from Fidelity points out, “an ISA doesn’t ring you at 2am to say the boiler is broken.”
With rents predicted to rise as the number of properties reduces, Buy-To-Let in the UK remains a strategic investment option that is worth discussing with your IFA.
(And, just to get your figures in perspective, be aware that the average UK landlord in 2017 makes £343 clear rental profit per month – according to Axa/Taylor Main research, April 2017)
Browse Holborn Asset’s Jo Philip’s Elite 2017 tips for buying a UK property
Take an in-depth look at the pros and cons of BTL vs. a structured pension