Falling house prices in London may open new opportunities for prospective landlords

According to the latest data from the Land Registry, the average house price in London fell to £478,853 in May – a decline of around 0.4 per cent on the previous year.

Despite prices falling, London accountants Grunberg & Co believe that now may be a good time for landlords to snap up a bargain.

Recent months have seen a significant shake-up in the UK property market, with London at the heart of a growing number of locations in the South East to experience falling property prices.

Although the majority of boroughs in London continue to see demand outstripping supply, data from the National Landlords Association (NLA) hints that some 380,000 new investment properties may enter the market in the next 12 months as landlords dispose of their portfolios.

Robert Bean, Managing Partner at Grunberg & Co, said: “While everyone is focussing on the falling property prices in London they are failing to recognise that this may be a welcome change for those looking to either enhance an existing portfolio of properties or take their first steps as a buy-to-let landlord.

“The NLA figures, released a few months ago, were part of a report that highlighted the onerous tax and regulatory regime on landlords as one of the primary reasons for investors disposing of their properties.

“However, with the right support these issues can be overcome ensuring returns on investment properties continue to outpace the wide range of products currently available from banks and building societies.”

As hinted at by Robert, landlords have been forced over the last three years to comply with a number of new rules when letting a property, which has resulted in a significant increase in the amount of tax investors pay.

Chief among these is the reduction to mortgage interest relief. Up until April 2016, landlords were offered the chance to offset mortgage interest payments against rental income.

However, in 2017 this relief was reduced to 75 per cent, which has been followed by a further reduction to 50 per cent in the current 2018-19 tax year.

This relief will continue to be phased out until 6 April 2020, when tax relief for finance costs will be restricted to the basic rate of income tax (20 per cent).

This relief will be given as a reduction in tax liability instead of a reduction in taxable rental income, but only applies to individuals.

Robert said that in response to this change, many landlords have subsequently decided to turn their portfolio into a limited company to maintain relief, but added: “This brings its own complexities, including Corporation Tax and the requirement to submit annual records to Companies House.”

“With interest rates still relatively low despite modest increases to the base rate, traditional investments and saving schemes continue to deliver poor returns, which mean that even with the changes to taxation, property can still remain fairly lucrative – especially where investors seek help to manage their tax liabilities.”

Adding a final word of caution, Robert said: “Those wishing to enter the property investment market who already own homes to be careful of the three per cent stamp duty land tax surcharge on second homes, which will significantly increase the cost of buying a new property.”

To find out more about Grunberg & Co’s services for property investors and landlords, please visit www.grunberg.co.uk

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