Another week goes by and the analysis of the likely effects of the recent BTL mortgage interest relief changes continues. Not content with this significant change, we now hear rumblings that George Osborne is planning further restrictions on Landlords obtaining BTL mortgages...
First the Good News for Sunderland landlords...it Sunderland didn't appear in the recent Daily Telegraph article on the worst areas likely to be hit by the recent mortgage interest relief changes - click below for details
To be honest, this should come as no surprise to informed Sunderland Landlords, the areas featured are all Down South and therefore will be Capital Growth areas rather than Yield areas, meaning in those areas there is less likely to be a decent positive cashflow to cushion against the shock of a bigger tax bill
Thinking about it logically, when the full impact of the changes are felt this could provide a shot in the arm for the flatlining Sunderland sales market, as Landlords who are affected by this from other parts of the UK may choose to offload poorer performing properties and reinvest in areas such as Sunderland where they can a) get more for their money and b) get better Yields / higher positive cashflow
So that's the Good News...now for the Bad News...
We've known for some time that the Bank of England has sought additional powers to regulate the BTL market, which it's leader Mark Carney once described as a threat to the stability of the British economy (which seems a little bit extreme, in my humble opinion!)
Well unfortunately it looks like they're going to get those powers, as George Osborne recently made a 'Shock Announcement!' that he had granted such powers...or was about to do so...it's still a bit woolly...
Most informed observers suggest this is likely to lead to BTL mortgage applications having to satisfy the same sort of Stress Test that now applies to residential mortgages
BTL lenders do this anyway when assessing an applicant's suitability when assessing them for a loan but at present it's down to the lender to set their criteria, it now looks likely that there will be a legal minimum level set which all lenders will need to adhere to
Read the Telegraph article on this below
Should this be the case I personally think that in some respects this is a Good Thing, as it will prevent those potential Landlords who are not in a financial position to undertake such a business venture or withstand a change in market conditions / interest rates from becoming Landlords in the first place
We don't need anymore Bad Landlords or Skint Landlords...
Furthermore it will mean that properties that really don't stack up as rental properties are excluded from the rental market, as the rental return will be too low vs the loan amount
Heaven forbid a further economic calamity such as the one experienced in 2008 but if we do see a similar crash in the housing market and such rules do apply, the safety net of being able to rent a property that cannot sell or is significantly in negative equity may not be available to homeowners like it was in 2008/9
What happens then?
An additional significant consequence of this could be that existing Landlords coming to renew their BTL mortgage fail to meet the new criteria and are rejected - are they then forced to sell?
Thinking about it logically such a Stress Test shouldn't affect high Yielding areas such as Sunderland as badly as other areas such as I've mentioned above
So...what do you do? There is a school of thought that when the majority are running away and exiting a market the wise investor looks to jump in so it may be that this constant Landlord bashing is too much for some to take but presents opportunities for those in a position to capitalise
So if you have a bigger tax bill, sell your worst performing property and reinvest in better performing property or properties, perhaps at a knock down price from a Landlord who has had enough and is getting out?
Look at buying new properties in a Ltd Co? Whilst there are implications for transferring existing properties into a Ltd Co this is not the case when a property is initially purchased by a Ltd Co
I'm no tax adviser or wealth management expert (you really need to speak to an expert on such matters) all I'm saying that historically markets tend to adapt and change to cope with such legislative meddling, creating both winners and losers in equal measure
If you'd like to discuss anything raised in this post or any aspect of property investment in Sunderland email me firstname.lastname@example.org call 0191 567 8577 or pop into our office in Frederick Street for a chat