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A very interesting landlord dynamic is developing.There are now three types or sub-categories of landlord within the sector:1. Unencumbered landlords (those with no mortgage);2. Incorporated landlords3. The highly-leveraged sole trader landlord.In reality, only Landlords in category No. 3 will be forced to increased rents because of Section 24. However, Landlords in categories 1 and 2 will not be under such pressure.This dramatically changes the dynamics within the sector and exposes the category 3 landlord to additional risk.I discuss this with Stephen Johnson, M.D. of Shawbrook Bank:For clarification, I believe that rents will rise, but it will be an organic process created by multiple different issues that S24 and other influences, interference, and policies have spawned. The key thing is for category 3 landlords to prepare, and not just think they can put up rents as a cure-all to the threat.We look forward to hearing your feedback on this topic and to the type of landlord you are and what stance you are taking.SEE ALSO - A million landlords forced to increase rentsUP NEXT - Section 24 - landlords must take action nowDON'T MISS - Is it too soon to be putting up rents?NOW WATCH:
so company landlords have the edge
Just like the corner shop owner vs the Supermarket in the 1960s
the comparison I used when S24 was first announced
Learn Change and Adapt ?????
I'd say unencumbered landlords have the edge ;-)
I'd say some leverage is an advantage when interest rates are so low, even with S24
To each their own. I'm happy with a small portfolio and no debts, it's enough for me.
Rubbish! There are 4 sub categories, at least.
What about low-to-averagely leveraged LLs with an alternative, main income? That is a massive sector you always miss, V!
Good shout Rachel. Funnily enough, I was just thinking that I had missed that sub-category out. If they are a massive sector, and not affected badly by S24, then they are a another main competitor to the category 3 landlord!It would be really interesting to see a pie chart of how many landlords are in each of these categories. Does one exist I wonder?With all this talk of different category of landlords, I am having visions of "Father Ted" when Father Jack became a category 5 priest with hairy hands and had to go to St. Clabberts!!
On our first couple of properties we are category 4 landlords. Or category 4B, really, having significant other income AND being badly affected by s24.
With "J.O.B." income over 100k, personal name BTL - even on a less than 60% LTV - will attract more than 100% tax after 2022. This is mostly an artefact of losing personal allowance between 100k-122k though.
I must admit, after so many knocks from government, and having sent my figures to my accountant today for 2015-2016, whilst pondering what my January tax bill will be, and how that will be in a few years time under S24, my belt certainly is tightening on the property side of my financial life.
I'm also reflecting on what DL has been stressing for some time, about SE LLs being most affected. I'm starting to see where she's coming from.
My cashflow is good, and I clear a reasonable amount of cash a month from two properties because rents are high down here. But having remortgaged both last year, thanks to ridiculous capital growth, to finance a large extension and refurb on my own home, I am now borrowed to the max. Hadn't really realised this until reading a post and creating a spreadsheet the other day on the latest MMR and 145%, 5% test on rental.
My LTVs are around 70% and reducing steadily after last year's remortgage; my home mortgage is now under 40% after refurb, my cash flow on rents is very nice; but due to rental tests @ 145%, my rents would have to increase considerably for me to be able to borrow what I already have under the new criteria, let alone draw any more out. So ... there's no way I can remortgage and expand. All I can do is concentrate on paying down to mitigate the effects of S24 on my earnings.
I can't put up rents to what they'd need to be under new tests - they'd be an absolute piss take, and I have excellent tenants paying quite enough as far as I'm concerned. For now. Let's see what S24 does to that plan.
Of course, my main income is what I live off, and BTL was always my long term pension investment, but it really is not looking anywhere near as profitable for short term gain. I can't see how a full time LL could make it pay down here now.
I sold a London property earlier in the year due to PRA and S24 as I would never be able to release any capital gain due to the reasons you mentioned above.
I’m hoping I have sold at the top as more and more SE landlords begin to understand the financial implications of PRA and Section 24, more properties will hit the market placing downward pressure on house prices.
I am using the Capital Gain to buy in LTD Co structure and buying high yielding properties which will hopefully mitigate the loss in capital gain of the recently sold London property.
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I only have 2 properties, and both are my previous homes rather than classic rental properties, but I am really really analysing whether I should think about selling one, and paying down on the other, and my home, as rental percentages don't work at the moment due to tax changes and mortgage tests.
I really am heavily weighed towards capital gain now, rather than cashflow, as S24 and PRA have mutilated ROI / yield. But, due to my main income/main job, I am not under pressure to sell.
However, in response to the thread title, and from the additional sub category 4 point of view, yes, the game has certainly changed. Significantly.