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.

1

http://www.propertyindustryeye.com/new-tax-regime-will-push-landlords-out-of-the-sector-says-savills/