Landlord Chris Bryan is busy offloading the bulk of his buy-to-let property portfolio thanks to tax changes that will force him into the red.
He and his wife have 55 homes in Sheffield and Doncaster bought over the last 28 years, mostly on interest-only mortgages, but over the next two years the government is gradually removing the right to claim mortgage interest tax relief.
This means that investors are unable to offset all the mortgage interest against their profits. Within two years none of the interest will be tax-deductible, so landlords will pay more to the Inland Revenue and, in some cases, will be taxed on non-existent profits while being pushed into a higher tax bracket.
Like many private landlords Mr Bryan, a former mechanical engineer, didn't realise until recently just what the impact would be.
“The loss of mortgage interest tax relief means that our homes are not viable financially and we have no option but to sell. I am having to ask good long-term tenants to leave their homes and I've even had to evict some who have refused to go, which is upsetting for everyone.”
He isn't alone. According to the National Landlords Association, 380,000 private landlords are looking to offload property. The government believes this will free up more homes for first-time buyers but Richard Lambert, chief executive of the NLA, disagrees: “These findings sound like positive news for potential new home owners, but the reality is not everyone wants, or is in a position financially, to buy. In fact, if all these homes are sold as planned then it will lead to a significant fall in the supply of property available to those who choose to rent, or have no other option but to rent.”
Letting agent Teresa Galley, of Galley Properties, puts it in stronger terms. She says that the consequences of the exodus will be catastrophic.
She runs an award-winning sales and letting agency in Doncaster and predicts that homelessness will rise and adds that many of those taking the place of local landlords are not first-time buuyers but foreign investors, mainly from China, and cash-rich people from London and the south east looking for a “bargain buy-to-let”.
“There's no shortage of affordable property for first-time buyers in Doncaster but a lot of them don't want to buy in those areas. They want to rent in a better area. It is a lifestyle choice,” she says. “They also like the flexibility that renting offers. It allows them to move around with their careers.”
She adds that unlike local landlords, the southern and foreign investors take the rental income out of the local economy. “Investors from ‘down south' seem to think their money is in demand up here and that they can ask for 20 per cent off market value. When you tell them ‘no' they say they must have an eight per cent rental yield and that's because a lot of them have been on property seminars.”
Doncaster and other affordable areas in the north, such as Bradford and Burnley, have been identified in property investment seminars as the best places to buy a rental property. The courses, many of which promise untold riches, proliferated in the last property boom. The organisers charge a fee while persuading those who attend to sign up for more lessons in how to invest.
Teresa says: “I went on one to see what people are being told. One suggestion was to use the tenant's deposit to fund their next purchase, which is illegal as deposits have to be lodged with a government accredited scheme.
“They also described using a credit card to help fund a property purchase as ‘good debt', which is appalling. What's incredible is how many highly-educated people were there taking it in without question. It's a form of brainwashing.
“When I questioned them, I was told: ‘You don't question the value of a spade when you're digging for gold,” says Teresa, who is keen that local landlords are not forced out of the rental market and believes that the government should re-instate mortgage tax relief for buy-to-let property.
“Not all local landlords are good but most do care about their tenants and the area. Chris Bryan is an example. He takes pride in maintaining his houses. He and others like him are being replaced by people from outside whose only interest is profit. They don't want to spend on improvements to the houses and this leads to areas becoming more and more run-down. At a time when we have a shortage of affordable housing, we should not be penalising those who provide a good service.”
She holds Ireland up as an example. In 2009 it stopped landlords from claiming full mortgage interest tax relief on rental income but now allow 80 per cent of the interest to be deducted and 100 per cent on property let to those on housing benefit for at least three years.
“They trialled scrapping mortgage tax relief in Ireland but it reduced rental stock, increased homelessness and pushed rents up,” says Teresa.