The government is reducing the mortgage tax relief on buy-to-let mortgages and many landlords are considering raising rents to cover their rising costs.
LandlordToday.co.uk reported in October 2016 that the Residential Landlords Association (RLA) surveyed 3,000 private sector landlords, and found that 56% of them plan to increase rents to cover their increased costs. Landlords have been hit with a 3% increase in stamp duty on house purchases and will soon face cuts in the mortgage tax relief rate.
The RLA also found that 54% of landlords have no confidence in the future of the buy-to-let market. This is why the RLA is calling on the present chancellor, Phillip Hammond, to reverse his predecessor George Osborne’s tax changes that affect landlords. They call on Hammond to support landlords and to encourage the building of more rented homes to fill the high demand for rented property.
A group of landlords is challenging the tax changes in a judicial review. It argues that the new legislation is unfair to small landlords as the tax does not take into account their expenses. Corporate and institutional landlords are taxed only on their profits.
Although landlords face challenges, many still believe that the buy-to-let market can be profitable. Commercial mortgage interest rates for buy-to-let properties are low and there are many areas where high yields can be earned on rental property. For example, in Blackburn, average rental yields are 5.69%, and in Carlisle the average is 4.73%, Yahoo! News reported in September 2016.