Osborne poised for ‘imminent’ new crackdown on buy-to-let

Chancellor George Osborne could crack down on the buy-to-let sector “imminently”.

The new curbs would be on top of measures already announced this month, to scrap the wear and tear allowance and to limit tax relief on the interest of buy-to-let mortgages.

Osborne has now told the Treasury Select Committee that the Bank of England could be handed radical new powers.

These could include the Bank being given powers to restrict the number and size of buy-to-let mortgages.

The Bank of England has warned that a buy-to-let bubble could threaten the financial stability of the whole country.

Osborne said he had already asked Bank of England governor Mark Carney for a consultation.
Asked by MPS about a timeframe, Osborne said: “I think the next couple of months. I have just written a letter [to Carney]. It’s all imminent. It’s happening this year.”

The move follows a downbeat assessment by the Residential Landlords Association of the curbs so far announced.

It says that as a direct result of the Budget, 65% of landlords are now considering raising their rents.
The RLA also attacked Osborne for arguing that landlords are currently taxed more favourably than home owners.

Alan Ward, RLA chairman, said that this was wrong, since unlike home owners, landlords are taxed on capital gains.

He said: “The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different.

“It’s time the Treasury recognised residential landlords as a business.”



Written by Rosalind Renshaw at Property Industry Eye

HMRC gives full details of wear-and-tear tax changes

HMRC has revealed the scope of its proposed changes to the wear and tear allowance, as announced in George Osborne’s budget earlier this month – and it wants the views of letting agents and landlords on the initiative.

Osborne stated that from April 2016 the formal “wear and tear allowance” –which allows 10% of rental profits to be written off for notional wear and tear, even if there has been no such actual expenditure in that particular year – will be replaced with a relief that enables all landlords to deduct the costs they actually incur on replacing furnishings in the property.

Now HMRC has announced the scope of the changes in an 11-page consultation document. One important piece of news is that whereas the old wear and tear tax break applied only to fully-furnished properties, agents and landlords will in future no longer need to decide whether their property is sufficiently furnished to claim the new replacement furniture relief.

This is because the new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing.

The consultation document is available online but the critical details are as follows:

“The relief will apply to landlords of unfurnished, part furnished and furnished properties.

“The relief will not apply to ‘furnished holiday letting’ businesses (FHLs) and letting of commercial properties, because these businesses receive relief through the capital allowances regime.

“The new replacement furniture relief will only apply to the replacement of furnishings. The initial cost of furnishing a property would not be included.

“Under the new replacement furniture relief landlords of all non-FHL residential dwelling houses will be able to claim a deduction for the capital cost of replacing furniture, furnishings, appliances and kitchenware provided for the tenant’s use in the dwelling house, such as:

- movable furniture or furnishings, such as beds or suites,
- televisions,
- fridges and freezers,
- carpets and floor-coverings,
- curtains,
- linen,
- crockery or cutlery,
- beds and other furniture.

“We believe that limiting the scope of the allowance to items that are provided for the tenant’s use in the dwelling house that is being let removes any opportunity to claim the cost of larger items used for the purpose of the property rental business, for example, cars.

“Fixtures integral to the building that are not normally removed by the owner if the property was sold would not be included because the replacement cost of these would, as now, be a deductible expense as a repair to the property itself. Fixtures include items such as:

- baths,
- washbasins,
- toilets,
- boilers,
- fitted kitchen units.

“Landlords will no longer need to be concerned with whether the item being replaced is a fixture (and therefore a repair to the property) or not. In either case, the cost can be deducted from their rental income to arrive at the profits of their property rental business.

“Landlords will no longer need to decide whether their property is sufficiently furnished to claim the new replacement furniture relief, as they had to when claiming the wear and tear allowance. This is because the new relief will apply to all landlords of residential dwelling houses, no matter what the level of furnishing.”

The Consultation will run for 12 weeks from 17 July 2015 to 9 October 2015.

Landlords considering post-budget rent increases

New research from the Residential Landlords Association (RLA) has undermined the Government’s case that changes to the way landlords are taxed will not increase rents.

Interim findings from a survey of landlords by the RLA has found that 65% are now considering increasing rents as a direct result of the budget.

The chancellor announced earlier this month that mortgage interest relief for residential landlords would be restricted to the basic rate of income tax.

Also landlords will no longer be entitled to an automatic entitlement to a wear and tear allowance for their properties, leaving them with no recompense for general wear and tear of a property.

The RLA’s findings undermine HM Revenue and Customs’ assessment that these measures will have no significant impact on rent levels and it argued that the basis of the budget assumptions is wrong.

George Osborne had argued that landlordsare taxed more favourably than home owners but both the Institute for Fiscal Studies and think tank Policy Exchange have warned that this is not correct. Unlike home owners, landlords are taxed on rental income and capital gains.

RLA chairman Alan Ward said: “The reality is that the chancellor’s belief that rental property is taxed more favourably than home owners is simply not correct.

“Rather than supporting the sector to provide the vital homes needed to support a flexible labour market, today’s Finance Bill will choke off supply and drive up rents.

“The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different. It’s time the Treasury recognised residential landlords as a business.”

Investing in New Builds

Since the creation of the new town of Cranbrook, on the outskirts of Exeter, we have received no end of calls from potential landlords looking to invest at the development.  The benefits of purchasing a new property are extensive, including low maintenance, higher than average rents and high demand – all of which help to produce a high net yield.

By working closely with the residents, developers and landlords, Martin & Co have become the lead letting agent in the town. By adding extra value such as accompanying purchasers on the site handover meetings, taking potential purchasers around the town to meet the developers and providing rental assessments and advice, we have been able to ensure our clients are in the best position possible to make an informed decision.

While there are many different styles of houses, flats and coach houses available at the development, I have listed below some rough examples of the rents and yields that we would be likely to achieve. If you are looking to purchase a property at Cranbrook please call me on 01392 254488 for a more detailed breakdown.

1 bedroom flat - £650 - £695pcm. Estimated gross yield – 5.56%

2 bedroom coach house - £795pcm. Estimated gross yield – 5.16%

2 bedroom house - £795pcm. Estimated gross yield – 5.16%

3 bedroom house - £895 - £950pcm. Estimated gross yield – 4.65%

4 bedroom house - £995 - £1100pcm. Estimated gross yield – 4.80%

Buy To Let tax blow delivered by George Osborne

Chancellor George Osborne has announced that mortgage interest tax relief for buy-to-let homebuyers are to be restricted to basic rate of income tax, currently 20 per cent.

He says the measure, which will address "unfairnesses in property taxation", will be phased out "gradually" from 2017. 

"Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better-off the landlord, the more tax relief they get. For the wealthiest, every pound of mortgage interest costs they incur, they get 45p back from the taxpayer” Osborne told MPs. 

"All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15 per cent of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability. So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get" he said.

This will certainly be interesting to watch over the next few months and we will keep you up-to-date as things develop.

Rents will rise if tax breaks scrapped, Osborne warned

Chancellor George Osborne has been warned that rents in the private rented sector could rise if he scraps the tax-deductible status of mortgage interest payments in today’s emergency Budget. 

In a letter to the Chancellor, the National Landlord Association’s chief executive officer Richard Lambert says that making mortgage interest payments non tax-deductible would be the last thing the UK economy needs and would only put greater pressure on the cost of housing.

The letter also outlines the contributions that landlords make to the UK economy by means of their support for the housing industry and through direct contributions in the form of tax.   

“It has been suggested that private landlords receive too many ‘perks’ or reliefs which give them an unfair advantage compared to owner-occupiers, but this ignores the fact that letting residential property for profit is a business” says Lambert.

“No business pays tax on their gross turnover alone so why should landlords be treated any differently? Removing their ability to deduct legitimate costs before declaring their taxable profit would essentially force them to suck up one of the most significant expenses they face in being able to provide homes for others” he claims.

Using figures from the Council of Mortgage Lenders reported at the end of 2014, the NLA estimates that costs in the private rented sector could rise by as much as £2.6 billion if mortgage interest payments were to be reclassified as non-deductible - a move it warns would leave landlords with no other option than to raise rents. 

Lambert concludes the letter by seeking…“an unequivocal reassurance that the Government will continue to regard buy-to-let mortgage interest payments as a legitimate business cost, and give landlords the confidence and certainty to invest for the future”.

Buy To Let mortgage restrictions on the way?

The Bank of England says excessive lending to fund buy to let purchases could pose a risk to the financial well-being of the country and it hints this may have to be addressed by financial tools to limit BTL mortgages.

In its latest report the BoE says in the year to March 2015, buy to let lending expanded by 8.0 per cent and now accounts for 15 per cent (or more th one in seven) of the stock of outstanding mortgages. It also accounts for 18 per cent of new mortgage lending.

So far, so good - but then the report grows increasingly concerned at recent trends.

“The expansion of the buy-to-let mortgage market has been supported by strong competition between banks, primarily in lending rates. But there are signs of growing risk appetite spreading to underwriting standards [and] .... the number of advertised buy to let mortgage products at LTV ratios of 75% and above has increased since mid-2013” it says.

It goes on to hint that pressure for buy to let mortgages is likely to be growing at the moment thanks to ‘pension freedom’ changes, but then the Bank issuesa stark warning:

“The actions of buy to let investors affect the broader housing and mortgage markets as individuals compete to buy the same pool of properties. Looser lending standards in the buy to let sector could contribute to general house price increases and a broader increase in household indebtedness. 

“And in a downswing, investors selling buy to let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages. This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs. 

“Buy to let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates than owner-occupied lending.”

The BoE report then adds that the Treasury will later this year consult on possible tools to be used by the Bank’s financial policy committee which could ultimately restrict buy to let lending.