Plan Insurance Blog

The Future of the Post-Pandemic Landlord

It’s been a roller coaster for landlords in the last few years. What happens when we get off the ride? In July 2020, the eye of the storm of the pandemic, Chancellor of the Exchequer Rishi Sunak announced big changes to property tax. Stamp duty exemptions went from £125,000 up to an incredible £500,000.

After years of suffering at the hands of the Treasury, landlords were keen to take advantage of an unexpected tax windfall.

Initially intended to jump-start first time buying after the first lockdown, this offered a welcome opportunity for landlords too. Even with a 3 per cent surcharge, there were still good deals to be made. Coupled with record low mortgage rates a property market boom was triggered.

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A Game-Changer For Small-Scale Landlords

Unlikely to garner much sympathy from the average person, the past decade hasn’t been kind to landlords. Under George Osborne, landlords experienced tax rises as they were accused of pushing out first-time buyers and creating a completely unaffordable property market.

Tax relief options for landlords were slim and there were restrictions on what could be deducted from taxable profits to cover the cost of wear and tear.

It is easy and unfair to stereo type landlords as cold-hearted slum owners controlling swathes of anonymous blocks. This unfavourable tax environment affected the ability for lower earners to take on a single buy-to-let property – which for many was a better alternative to a traditional pension.

Tax breaks may not be life or death for international property conglomerates, but they can transform the ability of normal people who are looking to make their first investment.

What A Difference The Stamp Duty Holiday Makes

From April 2016, the rates at which stamp duty is payable by private landlords increased by 3%. Properties valued at £40,000 or under continue to be exempt from the surcharge. Though the 3% additional tax applies over this value.

So the stamp duty holiday made a huge difference to the tax costs associated with buying a property for investors with more than one property already. Let’s break down the example of buying a £350,000 house (additional property):

  • During the full stamp duty holiday (July 2020 to June 2021) this would have cost a landlord £10,500.
  • Under the standard stamp rules (that applied pre July 2020), the tax bill for a landlord on an identical property would have been £18,000.
  • Right now, we are in a cooling off period (starting June 2021 and ending September 2021) and the tax for a landlord will be £15,500 on a £350,000 additional property.

The White Picket Fences Bring Better Yields

In the past, even aspiring one-property city landlords would invest in a place in the same city. The modest London landlord living across the road from tenants is becoming less and less of a reality.

The once forgotten towns and suburbs are now in the crosshairs of investors. In 2009, 27% of London-based investors had properties outside the capital. Now, the number is up to 63%. The market doesn’t lie, london-centricity is truly dwindling.

Differences In Rental Yields Across The UK

Rental yield: The value of the annual rent a landlord can expect from their property divided by the cost of their initial investment.

  • The average yield in England and Wales is 6.1 per cent, which is the same as it was in 2015.
  • In London it has fallen consistently from 4.9 per cent to 4.6 per cent.
  • In Yorkshire and the Humber it has gone up from 7.2 per cent to 7.4 per cent.
  • In the northeast of England it had jumped from 8 per cent to 8.8 per cent.

Is Being A Landlord Really A Smart Investment in 2021?

Landlords will likely not reach the heights of the pre-2017 London market. The rush of investing as a result of the stamp duty holiday will act as a bandage on the chronic decline in the size of the private rented sector. However, it is not enough to solve the issue.

Aneisha Beveridge, the head of residential research at Hamptons believes, “Landlords are increasingly having to chase yield rather than capital growth on their investments.”

Landlords have been forever shaken by the ‘great moratorium’.

The pandemic’s extended eviction ban was pointed to as the reason for some of the worst rent arrears in history. It’s not surprise that the The National Residential Landlords Association (NRLA) said its research showed that, while purchases are going up, one in five existing landlords was considering transitioning to other investments.

If you’re considering switching to holiday rentals or short-term lets you should read this blog?

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