The coming year brings uncertainties and some unwelcome changes in the tax regime as well as a tightening of restrictions on buy to let lending. We’ve covered these changes in some detail in previous newsletters, and so as we begin the year it seems appropriate to review some of the options in front of private landlords.
Landlords face a phased removal of tax relief on mortgage interest. At the same time there are some good rates on offer for new mortgages, making it possible to offset some of the raised cost of borrowing associated with the tax increase. It’s true that you’ll need to meet the new more stringent criteria for the ratio of rental income to outgoings, but if you do there are some great deals out there.
Become a limited company
Limited companies can still claim tax relief on the interest for residential buy-to-let assets, and corporation tax looks set to be reduced, so it may well be worth setting up a limited company to hold your investments. There are other costs involved so it won’t be the right choice for everyone, but it’s an option worth seeking professional advice about.
The tax change on interest relief means that this might be a good time to review the borrowings incurring that interest. If, like many longer term landlords, you’ve accumulated a property portfolio over many years it makes sense to look at any tired or under-performing units with a view to selling them off, releasing some equity and paying down your borrowings. We’re helping a number of clients review their portfolios right now, so talk to us: reducing your exposure while keeping your most valuable assets could be a truly smart move.
London looks set to become a tenant’s market, with a large number of new developments reaching completion this year, intensifying competition. The specifications and mint condition of these properties will highlight any shortcomings in existing older buildings, and the comparison may be a dealbreaker for some tenants. You can offset this risk by planning intelligent refurbishment for when a property next becomes vacant. The immediate cost may be unwelcome, but such an investment could generate an immediate return in the form of higher rental income, sustainable over an extended period.
Reduce management costs
The changed tax and regulatory regime will reduce returns, so it makes sense to try to reduce your costs at the same time. We think agents have a part to play, and so we’ve developed new fee structures to reflect these changed conditions and reduce the burden on landlords. Talk to us now for a free no-obligation portfolio review: we’ll show you how you could save thousands over the next few years. Contact us on 0207 378 0644 or email us at [email protected]
We’re always on hand, so if you have any questions about any of these options, or if you just want to discuss your portfolio and potential values more generally, contact us on 0207 378 0644.
By Jaimie Beers
Jaimie Beers is Managing Director of Madley Property.