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Tax Changes Will Push Landlords Out of the Market, Reports Savills
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
Tax Changes Will Push Landlords Out of the Market, Reports Savills
The plans to cut buy-to-let landlords’ tax breaks, announced in the summer Budget, are likely to push investors out of the market, believes Savills.
In a recent report, the property firm states that landlords’ earnings will drop substantially.
Savills predicts that a landlord with a 70% loan-to-value (LTV) mortgage would potentially suffer a cash loss after tax, even if their property delivers a gross yield of 6%.
Its calculations reveal that the loss, based on a £200,000 home bought in 2020, could be £3,180 if the gross yield is 3%, £2,280 on a gross yield of 4%, £1,380 on a yield of 5% and £480 on a 6% yield. On a 7% gross yield, the landlord would make a profit of just £420.
In another example, Savills shows that a property today worth £214,000 on a mortgage of £115,560 and with a gross rental yield of £10,700 per year makes a net surplus income of £2,562 after borrowing, as tax relief on mortgage interest is fully deductible.
However, from 2020 – when the tax change is fully enforced – the value of the property will have gone up to around £255,302, and the rent up to £12,894. However, the landlord’s net surplus income after borrowing will go down to £949.
Savills’ report arrived at four main conclusions:
- Many investors will sell off parts of their portfolios and a “large number”1 will not expand.
- Some will move over to lower value, higher yielding sectors.
- Although the Government is pushing homeownership, demand for private rental accommodation will continue growing.
- However, private landlords may not be able to meet this demand.
