Buy to Let Market 2018: What Should Landlords Do?

The buy-to-let market has certainly faced some big changes over the past couple of years and 2017 was no different. The year brought with it tougher taxes and mortgage affordability criteria being imposed on landlords across the country. Consequently, buy-to-let landlords have now been left with a big question mark as to how they continue to move their portfolios forward and generate profit in 2018.

It’s not breaking news that life has become considerably harder for landlords recently. In 2016 the Government introduced a higher stamp duty surcharge on those buying a second home, which includes buy-to-let property purchases, and adding thousands of pounds on to landlord’s total initial up-front costs. It also abolished the 10% “wear and tear” allowance landlords were entitled to be deducted from their rental income, and last but not least in April 2017, the government began to reduce the amount of tax relief that landlords can claim on their mortgage interest costs, which will gradually fall to 0% by April 2020. A combination of these changes is already enough turn a healthy profit margin into losses for those with large mortgages, so in an already difficult and heavily penalised industry, what can we expect for landlords and the buy-to-let market in 2018?

There is much controversy to what the fate of the market will be over the coming year. Unsurprisingly, it was reported in the third quarter of 2017 that new buy-to-let lending for house purchases was around 15% below the average of the past five years. Some anticipate that many landlords will start to offload their investment properties in a bid to avoid any potential future losses, as shown in research by the Residential Landlord Association. The report suggested that one in five of their buy-to-let investors plan to sell within the next 12 months, whilst half of the remaining landlords plan to increase rents over the next year to compensate for the lower rental yields. A sudden surge in low/mid-range priced properties coming to market for sale could mean a foot in the door for many first-time buyers who would have been otherwise outbid by wealthy investor.

Whilst many smaller-scale landlords are beginning to re-think their long-term investment plans as a result of the uncertain industry, some are not concerned at all. John Eastgate, sales and marketing director at One Savings Bank, commentedthere was still lack of understanding among the “amateur”, or non-professional landlord, of the effect of the withdrawal of tax relief. Many of which won’t fully appreciate true costs of this until they’re due to pay their tax bills in January 2019, and perhaps at this point we may see a sharp increase in the sale of landlords offloading their investment properties.

Despite the various changes continuing to filter through to the buy-to-let market, it’s believed many experienced landlords will manage costs by simply not adding additional properties to their portfolios, rather than exiting the market altogether. Professional landlords are more likely to assess their portfolios and ditch the lower-yielding homes and start buying those with higher yields in more favourable areas. Additionally, those landlords with larger portfolios are now opting to buy rental property through limited companies as a quick-fix solution for retaining profit in face of tax relief cuts. The tax relief cuts don’t apply to buy-to-let properties owned by a limited company, as costs can be written off as business expenses for tax purposes, and as a result more than seven out of ten buy-to-let applications for purchases were made via limited companies in the first nine months of 2017.

However, like most quick-fixes this doesn’t come without warning, as research suggests that using a limited company will only make a landlord better off if they have four or more rental properties, and existing landlords would need to have ever larger portfolios to make switching from over from personal ownership worth it (due to stamp duty and capital gains taxes).

Clearly there is not a one-size-fits-all solution for landlords in the new era of the buy-to-let market. The new year brings much uncertainty as to how the market will react to all the recent changes, and it’s certainly no longer a place for the ignorant or ill-advised landlord to thrive.  Getting the right advice is key, from both a specialist tax adviser and a mortgage broker, who can assess your individual situation and recommend the best way forward for you. At Tru Wealth Mortgages, we aim to guide all our investor clients in today’s market to ensure they are always up to speed with the most advantageous mortgage rates and allowing them to remain profitable in 2018 and beyond.


If you would like advice on purchasing buy-to-let property or would like your current portfolio reviewed, please get in touch with us by calling us on 0141 212 3983 or emailing for more information.

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