Council Tax whammy for buy to let landlords

I'm not sure the 'buy to let party is over', as one UK national paper had it this week. Serious landlords have always been into property for the long haul, and that means troughs as well as peaks, not my idea of a party! And the ten-year bull market in residential property was never going to continue. But news this week that rents are on the way down adds to a triple whammy for anyone who bought in over the last three or four years.

During last year, many were glibly asserting that as nobody was buying, they would all be renting instead. Pressure on rental properties would thus mean prices rising. Except of course, many of those who couldn't sell were simply dumping their properties onto the rental market, these 'accidental landlords' raising supply and so reducing rents - simple supply and demand. Then, there is the more nebulous element of reduced economic activity. The economy is slowing, deflating, with fewer people taking on new jobs and moving to new cities to do so - all this can only depress demand for rental property, and of course those who do want to rent have smaller salary deals, so will pay less or move downmarket.

Now if you bought into the market late, and so are operating on sub-5% yields, any reduction in rents can take you into a monthly loss. If you're on a fixed rate mortgage (or if your lender is tardy about passing interest rate cuts on, as we know they have been) then there is no equivalent cut in costs to offset lost income. Bad enough for you yet? Now to pour water on a drowning man. You're less likely to smoothly reduce rents to meet the new equilibrium rent than simply find that your flat stands empty for a while at the end of its tenancy - price in the rental market is inelastic like that. So no smooth adjustment of finances but a sudden hole punched in your monthly balance sheet. And to add insult to injury, you're now having to pay the Council Tax that the tenant previously paid. On a one-bedroom London flat that might mean the loss of £1000 pcm rent plus an additional £100pcm in Council Tax.

The smart move? Cut rents to get that void filled as soon as possible.