Landlords cash in on bumper returns as rents hit record high amid buy-to-let tax hikes

Landlords are set for another bumper year of returns despite a series of tax hikes on the buy-to-let sector and stricter mortgage rules. The Kent Reliance Buy-to-Let Britain report for the second half of 2016 said landlords raked in £4.6bn a month in rent, up 8% on the year.

Total annual returns — both rental yield and the capital gain as house prices rise — hit £158.2bn ($199bn), or a 14.4% gross yield. That is down from 15.2% in June, however. Moreover, rents rose by 2.4% across Great Britain to an average of £881 per month, a record high.

"Property investors have had to roll with punches in 2016," said Andy Golding, chief executive of Kent Reliance on OneSavingsBank. "The stamp duty levy clearly took its toll on the market, and combined with the forthcoming tax changes, landlords have felt at the mercy of a political agenda. But confidence is returning as landlords take action to limit the damage to their finances."

The Treasury increased stamp duty for buy-to-let investors by 3% from April 2016. It has also removed a blanket tax relief for maintenance costs and will, from April 2017, begin removing a relief that allows landlords to offset their mortgage interest costs against their income tax bills.

And the Bank of England introduced stricter mortgage lending rules for buy-to-let over concerns that the market is overheating while interest rates are at all-time lows. The Treasury also gave the Bank of England extra powers over banks to restrict the buy-to-let lending of individual institutions if regulators deem it necessary.

Then in the Autumn Statement, Chancellor Philip Hammond said that "as soon as possible" there would be a ban on letting agent fees for tenants, with the burden switched to landlords, who warned rents would rise as a consequence.

The Kent Reliance report said rent rises "are likely to accelerate in 2017". A third of landlords expected to increase rents in the next six months by an average of 5.4%, said the report, with two thirds of those citing higher future taxes.

"The raft of recent measures aimed at the buy-to-let sector singularly sought to increase home ownership levels," Golding said. "Ironically, they will achieve the opposite, with even greater upward pressure on rents combined with the prospect of declining real incomes likely to stretch affordability even further.

"We have warned all along that the tax changes will push up rents, and this is already starting to happen. The ban on often unjustifiably high letting fees is well-intentioned. However, it also means landlords could pass higher costs onto tenants, doing little to bring down the overall cost of renting."