Recently, I found myself reading an article on Landlordzone by Tom Entwistle, titled: What has gone wrong, when a typical buy-to-let landlord makes a loss?
Being the founder of Rocket, an agent that ensures our landlords are profitable by minimising their costs and maximising their returns, this piqued my interest.
Tom explains, which I agree with, that the ‘landlord bashing’ began with George Osborne in the summer of 2015, when proposals were announced to restrict tax relief on mortgage interest payments if you own a property in your own name, and at the time the majority of landlords owned their properties in their own name.
Over the course of the next several years, the landlord bashing continued, as the 10% wear and tear allowance was removed completely, which had previously allowed landlords to take 10% off their rental income before calculating the amount of money they had to pay in tax.
This was followed by an imposed 3% surcharge on stamp duty for anyone buying a property that was not their first home and just generally, a lot of the tax reliefs that you used to get as a buy-to-let landlord were phased out.
For the most part, these changes in legislation were well intentioned, as it was in the hope that more first-time buyers would be welcomed to the market, by making it less profitable for portfolio landlords so they would not dominate the market.
To some extent, this worked, as first-time buyers were not having to compete with investors.
As with any government legislation that is not thought through all the way, however, there were a number of unintended consequences.
The most notable of which has resulted in the current rent spike. By making it difficult to maintain a profitable property portfolio, it has forced private landlords to sell, which has in turn shrunk the rental market and as such, rents have shot up.
Right now, demand for rental properties in London is through the roof, but so many private landlords have left the market that the supply is simply not there.
Getting back to the article, Tom suggests that as a result of these years of landlord bashing, landlords with large amounts of debt at 70% are now making a loss.
This is true for the average London property with a rental yield of up to 6%.
Where I would disagree, however, is that this does not have to be the case. With the properties that we source for our clients at Hexis Properties, our newly launched subsidiary brand of Rocket, landlords can buy a property with 70% debt and still make a profit, as Hexis Properties achieve rental yields of 7-10%.
We have a very particular style of property that we source at Hexis, which you can find out more about by visiting our website, and we rent to young professional sharers who don’t want to buy anyway, as when they first move to London they want to live with friends.
So, with the help of Rocket and Hexis, it’s not all doom and gloom as a buy-to-let landlord.
And with interest rates set to come down in the near future, soon investors will re-enter the market and it will become easier to make a profit.
Long term, however, it’s up to the government to solve the problem for both landlords and renters and the way to do that is to increase supply.
That means more building in London, as well as freeing up planning and just generally being a less restrictive government in the property sector.
The new Labour government have been saying the right things in this respect, but only time will tell if their promises are actioned in practice…
