A property firm at the centre of the campaign against phasing out landlords’ mortgage interest relief says is urging tenants to rent in HMOs if they wish to minimise the impact of rent rises which may be a result of the fiscal change.
Platinum Property Partners - whose founder, Steve Bolton, unsuccessfully sought consent for a judicial review of the legislation introducing the mortgage interest change - says m ost landlords would have to raise rents by 20 per cent or £179 per month on average to cope with the effects of the change.
A survey undertaken for the firm claims that 79 per cent of tenants could not afford this and would have to move out to find cheaper accommodation - but it suggests HMO tenants would only potentially experience rises of £19 each, which the vast majority could afford.
Since April 6 this year landlords must pay tax on part of their mortgage costs, as the ability to offset finance interest against rental income is restricted. PPP says the plans will effect higher rate taxpayers, as well as almost 500,000 landlords who will be pushed into this tax band. The firm claims two thirds of landlords plan to raise rents to cope with these changes.
It adds that to offset the measures and remain profitable, landlords would need to raise rents by at least 20 per cent or £179 per month.
“Our research suggests many HMO tenants could not afford the average rent rise most landlords would be forced to make to remain profitable and would have to move out” says Bolton.
“This leaves landlords having to choose between potentially going out of business or losing a tenant. Fortunately, HMO properties provide relief for both tenants and landlords. HMO tenants enjoy much lower rents, enabling them to save for their long-term goals. HMOs also provide landlords with up to four times more rental income than a single-tenancy property, leaving them much better positioned to absorb rising costs.
“Ironically, the tax changes have been brought in in an attempt to improve homeownership. But higher rents will make it much harder for tenants to save, putting costly deposits even further out of reach. The changes are also fundamentally flawed because the government thinks landlords and first-time buyers buy the same types of properties – which simply isn’t true” he says.