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What the Autumn Statements Means for British Buy-to-Let Investors

Invezz Newsdesk
  • December 14th 2016, 07:57
  • Last Updated: May 21st 2019, 07:46

On 23rd of November, exactly five months since the UK’s historical vote to leave the EU, new Chancellor of the Exchequer Philip Hammond gave his first Autumn Statement. The speech outlined in full the government’s predictions for the future of the British economy, and the steps that Theresa May’s cabinet intends to take to safeguard the country.

After George Osborne’s repeated attacks on landlords in recent years, property investors waited with baited breath to see what further changes would be proposed. Now that the dust has settled it seems there are a number of notable points made which could affect landlords in the UK. Here’s what we know so far…

Upfront Letting Fees Banned

Possibly the element which got most press on 23rd of November was that the Tories plan to ban upfront fees from letting agents. As the renting population of the UK continues to grow, many tenants have struggled to afford the high fees charged by many agents for credit checks, contract drafting and so on. The hope, no doubt, is that this will make becoming a private tenant a more financially-reasonable solution for millions of Brits.

Quite when this ban will come into effect has yet to be defined. The wording of the Autumn Statement simply used the phrase “as soon as possible” which could mean anything from weeks to years.

What we do know is that this change has already been affecting the value of major letting agents across the country, with concerned investors voting with their trading accounts.

Whether these changes really will make renting “cheaper” – and so reducing the profits of letting agents is a question as yet without an answer. Some authorities have claimed that rents may simply be increased over time to claw back these losses, or that agents may increase their management fees similarly.

While we’ll therefore have to wait for further details until we can say for certain how this will impact British landlords, the impact is likely to reduce returns at least in the short term.

Increase of the Living Wage

While the banning of up-front fees may have garnered the most press coverage, there were a surprising number of other announcements which could be seen as very good news for landlords.

The first of these is that the national living wage is set to increase from 7.20 per hour to 7.50 per hour from April next year. This means a potential boost to the finances of Britain’s “just about managing” families (“JAMs”). In turn, such a move could see families better able to afford rents, or seeking to move from local authority housing into the private sector.

Either way, giving more “breathing space” to those on low wages not only offers ethical benefits but could turn out to also be a blessing to private landlords who can expect more solvent tenants.

Higher-Rate Income Tax Bracket Increased

At the other end of the pay scale, Mr Hammond vowed to increase the higher rate tax bracket over the next few years. Initially, this will increase from £43,000 to £45,000 in the 2017/18 financial year, rising to £50,000 by 2020/21.

For landlords busily growing their empires, and as a result, their incomes, this could mean considerably more money in your pocket.

Earning £50,000 per annum at the time of writing would see you paying 40% tax on the final £7,000. That’s £2,800 going to the taxman. By 2020, however, that same sum will only be taxed at 20%, meaning an extra £1,400 of post-tax income.

£2.3 Billion House Building Fund

Philip Hammond also announced that after years of successive governments dragging their feet on meeting house building targets, over £2 billion will be put aside to build upwards of 100,000 houses in the coming years.

This is an indication of just how much the housing crisis has developed, with many people unable to afford a suitable home for their families. It’s also a measure of how much the government expects the British property market to continue growing over the next few years.

Quite how this house-building spree will affect landlords isn’t clear yet. On the one hand, landlords could serve a useful social function, opening up these new properties to renters, rather than them being solely enjoyed by those with the funding to buy.

On the other hand, a growing housing stock could reduce interest in renting from private landlords, potentially slowing growth in the housing market.

Whatever the outcome of these changes, it seems that British property investors will once more have to remain flexible and agile. Changes are coming, and only those able and willing to capitalize on them will feel the benefits, while those sticking to the old ways of doing business may find themselves falling behind over the coming months and year.

This article was produced by RW Invest, a specialist provider of buy-to-let investment properties in the North of England.

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