Landlords can sell off a large number of homes each month as tax and financing reforms continue to affect their profits.
Recent data in the Secretary of state for Housing, Communities and Local Government (MHCLG) implies that this sell-off led to the biggest drop in rental homes in England since 1988.
Here, we check out the factors affecting landlord returns and provide suggestions about how you can still earn profits from buy-to-let.
Landlords selling up buy-to-let properties
Data from MHCLG implies that almost 4,000 buy-to-let homes happen to be sold by landlords each month.
This implies that the number of properties in England’s private rented sector dropped by 46,000 last year, the biggest reduction in 20 years. The general stock of rental properties this past year was 4.79m.
There are also signs that would-be landlords aren’t prepared to jump in to the market.
Stats from UK Finance show that only 5,500 buy-to-let mortgages were granted in May – a small amount of nearly 10% year-on-year.
Why are landlords leaving the market?
A raft of taxation and regulatory changes introduced during the last couple of years have eaten into the income that landlords could expect.
Mortgage interest tax relief changes
The amount of mortgage interest landlords can deduct using their income when filing their tax bill continues to be tapering off since 2022. Within the 2022-18 tax year, you’ll only be able to offset 75% of your interest, and this figure will drop by 25% each tax year.
This continues until 2022, once the tax relief is replaced by a flat 20% tax credit.
Stamp duty surcharge
The 3% stamp duty surcharge for buy-to-let investors has had a significant impact on property investment since its introduction in April 2022.
The extra charge means landlords purchasing a lb250,000 buy-to-let will now face a stamp duty bill of lb7,500, compared with lb1,500 prior to the rules were introduced.
Lending rules being tightened
Almost last year, tougher lending restrictions arrived for landlords with four or even more properties.
These rules require investors to show full financial information for every property within their portfolio when borrowing extra funds, as opposed to just their overall profits.
For heavily mortgaged landlords, substandard greater difficulty in obtaining cash to grow portfolios.
Can you still make a profit like a landlord?
This might all sound like not so good news, but don’t worry; there are still things you can do to give your better possibility of turning an income.
Take your time and effort and choose the right property
Think beyond the cheapest and most-expensive areas when you are performing your quest, and think about the balance between rental yields and capital growth before rushing in.
While an inexpensive home may have potential to grow significantly in value in the future, remember that lenders may wish to see projected rents which cover at least 145% of your monthly mortgage repayments.
Make the right decision on property management
If you’re not a professional landlord and you’re contemplating buying a house 300 miles away, you’ll probably need to employ an agent to look after it for you personally, and that’s going to cost you money.
While this doesn’t mean you should only take a look at homes nearby, it’s important to think hard about how much time and energy maintaining a let will cost you, and also to consider the advantages and disadvantages of using a property-management company.
Find the right tenant
Think about who might want to reside in your home, and concentrate on which makes it as attractive as you possibly can to that particular ideal tenant.
While millennial flatsharers might want a furnished, modern property, a family may prefer an unfurnished home they can think of as a blank canvas.
Void periods are your biggest enemy as a landlord, so everything you can to locate a tenant who’ll be there for the long term.
If you’re a portfolio landlord, think about incorporating
Landlords are setting up limited companies to carry their portfolios, but this only really makes sense if you’re an expert landlord.
For other investors, breaks on mortgage interest tax relief will be counteracted by capital gains tax, stamp duty costs when transferring homes towards the company and better mortgage rates.
How will the landscape search for landlords in 2022?
There are a handful of major reforms coming for property investors.