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Next Property Crash Could be Triggered by Great Sell-Off by Landlords
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
Mortgage interest tax relief changes, coupled with proposed rent controls, could trigger the next property crash, as landlords rush to sell-off their investments, warns a finance expert.
Next Property Crash Could be Triggered by Great Sell-Off by Landlords
Gary Heynes, a partner at tax and business advice firm RSM, believes that landlords could rush to put their properties on the market as the full effects of the reduction in mortgage interest tax relief, alongside Labour’s proposed rent controls, hit their profits.
He says that, as the tax relief changes are increasingly phased in, landlords could find themselves paying more in tax than the net rental income they receive.
If they cannot put rents up to cover the shortfall, Heynes claims that there would be a huge influx of properties put onto the market.
The amount of tax relief that landlords can claim on finance costs is already being cut. From 6th April 2017, tax relief is being restricted, with the full reduction due to be in place by 2020/21.
This tax year, 25% of landlords’ finance costs will receive tax relief at the basic rate of 20%. In the next tax year, this will rise to 50% and, by 2020/21, all finance costs will only get tax relief at the basic rate.
Heynes explains that someone with a £600,000 property paying an interest-only mortgage could find that, in the future, what is now a 4% annual return on investment would be replaced with a cost of £1,700 to run the property.
“Margins are getting tighter for landlords,” he says. “Add to this a possible increase in interest rates, and the issue is exacerbated.”
He expects many landlords to simply put rents up for their tenants in order to cover the shortfall.
“However, if a Labour government is elected, rent controls are almost certain to follow, so increasing rents might not be possible,” he explains. “Higher interest rates, coupled with rent controls, would not be a great environment for personal landlords and could instigate the great sell-off, as landlords look to reinvest elsewhere.”
Heynes adds: “This response could cause the next property crash, as the property market becomes over-supplied with assets to sell, pulling house prices down, impacting equity levels and mortgage agreements.”
Do you believe that Heynes’ predictions could become a reality?
