BTL potential changes to mortgage interest deductions?

Fol20

Hi All,

I was reading another thread recently where someone brought up the fact that in UK mortgage interest deductions are not allowable any longer. We follow a lot of what the UK do and i was wondering what are the odds they do something like this here.

Why was this brought in the UK as i only see it as a lose lose for everyone. LL lose out as they pay more in tax. Tenants loose out as with a system where you cant claim interest, a large swath of ll will leave the market and sell up thus decreasing supply further. The only ll left will be REIT's or a certain class of LL with extreme wealth.

More can be found here:
https://www.skiptoninternational.com/help-article/interest-relief-guide#:~:text=Up%20until%20April%202017%20landlords,when%20declaring%20profits%20to%20HMRC.&text=Landlords%20will%20instead%20receive%20a,20%25%20of%20mortgage%20interest%20costs.



https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords


https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Claw Hammer

It happened here in 1998, so we were well ahead of the Brits. Rents doubled in 3 years and it was reversed. The reduction to 75% relief was eventually reversed because of the effect on rents. In general, any time there is a reduction in mortgage interest relief for BTLs, rents go up.

DubCount

The impact of this depends on where you fit in the property system.

If you are a landlord with a mortgage, its a massive increase in cost (additional tax) with restricted ability to increase rent to compensate, and a strong incentive to sell up and leave the market (in the unlikely event you are not already trying to get out)

It you are a Buy-to-own buyer, this will add stock to the market from exiting landlords and should help push prices down.

If you are a sitting tenant of a REIT or a private LL with no mortgage, it will make no difference.

If you are a sitting tenant who gets evicted because of this, or are trying to enter the rental market, you end up being the one who pays with higher rent prices and less available rentals to fight for.

Our government has consistently shown a preference for looking after Buy2Own buyers and REITS ahead of private landlords, so it would not surprise me if it was brought in. The only people it hurts though is those who already struggle to find rental property - and I guess there is just no votes or vested interests fighting for that group.

sk8board

Full time LL here. During the financial recession they reduced it to 75%, at the same time there was a big drop in rents and thousands of surplus places for rent (23k places on daft in 2012 versus 3-4k today).
LLs exited the market and were replaced mainly by REITs and funds, and then demand greatly outstripped supply - so the Gov decided in 2017 to bring it back to 100% from 75% in 5% annual increments, but then decided last year to go straight to 100%.
They’ve probably left it too late, as LLs are exiting now that house prices are topping out and they can move into something else.

Remember that 120k of the 165k registered LLs are accidental LLs only renting one place. It’s a great time to sell up, and stop taking so much ‘investment’ risk

The current move towards private equity funds and reit’s is good in many ways - it helps to professionalise the private rental market, which I’m all for.

Fol20

What is the motivation or reasons for it though.

I can see all the negatives for everyone but bar the short term positives of taking in extra tax for a few years before ll leave the market. It’s all negative.

I’m surprised the U.K. decided to do this more recently.

Claw Hammer

Fol20 wrote: »

What is the motivation or reasons for it though.

.

Begrudgery!

Fol20

sk8board wrote: »

The current move towards private equity funds and reit’s is good in many ways - it helps to professionalise the private rental market, which I’m all for.

The rental market should be more professional and im happy its getting there but the one key negative for the REIT takeover is that you pay for what you get. Due to the extra costs etc, they will be inherently more expensive so a happy medium could be found as i would view myself as a professional ll that follows the rules and fixes items in a timely manner.

Fred Cryton

Fol20 wrote: »

What is the motivation or reasons for it though.

Petty Irish envy and jealousy, trying to get one over the "greedy landlords" etc....left wing populism at its worst. Landlords should be paying the 12.5% corp tax anyway just like with any business/investment.

sk8board

Fol20 wrote: »

The rental market should be more professional and im happy its getting there but the one key negative for the REIT takeover is that you pay for what you get. Due to the extra costs etc, they will be inherently more expensive so a happy medium could be found as i would view myself as a professional ll that follows the rules and fixes items in a timely manner.

All true.
The tenant has far more certainly, but at a price.

Personally I think the recent rent control rules have locked in us Landlords at our high yields.
Good landlords with tenants well below market rates were locked in too - and are now fleeing.

handlemaster

Fol20 wrote: »

The rental market should be more professional and im happy its getting there but the one key negative for the REIT takeover is that you pay for what you get. Due to the extra costs etc, they will be inherently more expensive so a happy medium could be found as i would view myself as a professional ll that follows the rules and fixes items in a timely manner.

REIT are only interested in Dublin cork possibly Limerick. People need to recognise that they will not provide accommodation out side of these cities

L1011

handlemaster wrote: »

REIT are only interested in Dublin cork possibly Limerick. People need to recognise that they will not provide accommodation out side of these cities

They're also willing to do suburbia; there are REIT properties in towns in Kildare, Wicklow and possibly Meath.

Beyond cities and suburbia you are not left with a particularly large rental market

handlemaster

L1011 wrote: »

They're also willing to do suburbia; there are REIT properties in towns in Kildare, Wicklow and possibly Meath.

Beyond cities and suburbia you are not left with a particularly large rental market

Yes as in population wise its proportionally in the cities. However people rent in very town and village ireland. Catering the laws to favour the reit had hammering the small time landlords is unfair and only ends up hurting the renters eventually.

Claw Hammer

Many people are unwilling to rent out property in rural Ireland. The rents are quite small and the potential hassle quite large. A 4 bed house in Carrick on Shannon gets the same rent as a room in a house share in Donnybrook. The maintenance on the house is large in comparison. There is often tourist letting possible in rural areas which means than the income can be obtained in a few weeks of the year rather than having the hassle of the RTB.