Let it all out: shifting to the lettings sector

  • By Bertie Russell
  • 28 September 2017

Increases in taxes and regulation are driving many buy-to-let landlords into the short-term let sector, according to the Residential Landlords Association, who find that seven per cent of landlords now offer multiple listings through online holiday let platforms such as Airbnb. This means that about 135,000 properties previously available in the private rented sector are being offered as holiday or short-let accommodation instead.

In 2016, Kensington & Chelsea saw a 79 per cent rise in the number of short-term lets available on the market, “mainly due to the influence of websites such as Airbnb and One Fine Stay, which have had a dramatic impact on the market,” comments Charlie Woods, lettings director at Russell Simpson.

What turns buy-to-let landlords into holiday letters? “The wider picture is of a sector that can be forgiven for feeling victimised, with both increased financial and regulatory pressures and more onerous demands on mortgage applicants. But the main issue for buy-to-let landlords is the tax situation,” says Nicholas Barnes, head of research at Chestertons, who reports a noticeable number of buy-to-let landlords shifting into short lets in the past few months.

“The three per cent surcharge is bad enough, but it’s a one-off hit when you buy. The most pernicious change is the loss of tax relief, which does not just mean mortgage interest relief but related costs such as loans to buy furniture,” says Barnes of the tax relief that, until April this year, enabled landlords to deduct 100 per cent of related costs from their gross rental income. Over the next four years, that relief is being phased out completely, so from 2020/21 all financing costs incurred by the landlord will only be given a basic rate tax credit. Ernst & Young figures show that a landlord making £125,000 in gross rent last year would have had a net cash flow of £13,750. By 2021, that landlord will make a loss of £11,250.

“It risks driving people from basic to higher rate tax and severely denting, or wiping out, their profits,” says Barnes. “It’s a developing situation. At the moment landlords are still getting 75 per cent relief. Next year will be critical as they will lose half their relief. A lot of smaller landlords haven’t woken up to that yet.”

Landlords have a few options. They can sell up, increase rents, transfer their properties into a limited company, or turn to short lets. “I have a gut feeling that ‘amateur’ landlords, who work full time and have a property or two, will ask themselves if this is still worth it. Larger professional landlords who do it full-time will find a way round it. Many are incorporating – though there are tax implications. Some are looking to raise rents and there’s a lot of remortgaging activity,” says Barnes.

The short-let option offers the potential for significantly higher rents – but also a higher risk of regular void periods, greater wear and tear, and a constant flow of unvetted tenants. Many London boroughs set limits on short term lets, too, either insisting on lets of a minimum of 90 days – or prohibiting owners from renting out properties for more than 90 days a year in total. “An increased number of landlords see short-term lets as a chance to make a greater profit, while outsourcing the servicing and cleaning of the apartment. But in the light of the 90-day-a-year limit for short-term lets, the prospects for buy to let landlords are still as good as ever,” says Charlie Woods. “Average tenancy lengths are longer in London than elsewhere in the UK and provide a very reliable source of income.”

Read the full article on The London Magazine website.


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