A poll of buy-to-let owners carried out by the Deposit Protection Service (DPS) suggests that rental prices will increase as a result of the higher taxes landlords are facing in future.
In the summer, the government announced that the amount of tax relief available for interest on buy-to-let mortgages would be reduced. This was followed by the chancellor’s autumn statement announcement which unveiled plans to add a three per cent surcharge on stamp duty for all buy-to-let property investments from the start of April.
68% of people that responded to the DPS poll (focused on how landlords felt the change in taxation would affect PRS), said that they believe rental prices have to increase if individuals are to be able to cope with these changes.
One in three landlords said they are mulling over the option of leaving the market entirely based on the earlier taxation. The new announcement however has increased the likelihood of a large influx of investments between now and the time when the change is expected to come into play in April. Many investors are expected to step up the gear so as to be able to avoid the new surcharge.
The survey also showed that landlords may redecorate less often than they do presently as a result of the change in the wear and tear tax breaks. One in four landlords that responded said this would be the case as they face. With the changes, the ten per cent tax break for wear and tear will be replaced with tax deductions that cover the actual amount spent on the replacement of any items around a property.
After the autumn announcement from Chancellor Osborne, many experts forecasted that landlords faced with the dual tax changes will leave the rental market as many of them have to increase rents for tenants to be able to maintain profitability. The poll shows that the forecast isn’t entirely off the mark. Rents are bound to increase, however landlords are not panicking as much as was first feared.
Although the livelihoods and financial wellbeing of many landlords will be affected by the taxation increases, it is not enough to completely put them out of the market. The DPS polls even show that small landlords or ‘accidental’ landlords are not looking to quickly exit the market anytime soon. Focus is now on the impact of the property investment surge, bound to happen between now and when new tax changes kick in, on the property market.