Property news: Banking on buy-to-let
THIS HAS been another tough year for buy-to-let investors who are reeling following the latest wave of stringent tax and regulatory changes.
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The government crackdown has squeezed profits and deterred thousands from using rental property to boost their pension income.
Just 2 per cent of savers over 55 who plan to release cash under pension freedom reforms are now looking to put the money into buy-to-let, according to Hargreaves Lansdown.
However, as rents and property prices continue to climb, and mortgage finance remains historically cheap, the buy-to-let dream is far from dead.
BIG MONEY
The total value of the private rented sector is now an incredible £1.4 trillion, up 6.4 per cent on a year ago.
Most of the growth has come from rising house prices, with the average rental property growing 4.2 per cent in the last 12 months to £245,950, according to the latest edition of building society Kent Reliance’s Buy To Let Britain report.
Rental income is also rising, up 1.5 per cent to an average of £895 a month, or £10,740 a year, with growth faster outside sluggish London. Tenant demand remains strong, with 5.6 million households in the private rented sector. But landlord confidence is fragile, with just four out of 10 positive about their prospects, far fewer than in recent years. Buy-to-let landlords have been punished by a government onslaught, including the 3 per cent stamp duty surcharge on purchases, stiffer rules on offsetting “wear and tear” against tax, and in April, an end to higher rate tax relief on mortgage interest payments.
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TAX ATTACK
Andy Golding, chief executive of OneSavings Bank, says: “Landlords are swallowing an unpleasant cocktail of higher taxation and tighter regulation, and this is undermining the private rented sector.”
Large-scale professional landlords get round the tax relief crackdown by buying properties as a limited fi rm, which allows them to offset mortgage interest against tax.
However, this is tougher for amateur landlords and is driving many out. Golding says: “Creating a more professional sector is no bad thing but there is a limit to the amount of change the sector can absorb before we see a damaging reduction in supply, driving up rents.”
RATES RISE
MoneyFacts.co.uk’s finance expert, Charlotte Nelson, says rising mortgage rates have added to a trying 2017 for the buy-to-let market: “Since the Bank of England increased base rates on November 2, the average two-year tracker buy-to-let mortgage has risen by 0.20 per cent, the largest monthly rise we have ever seen.”
Financing costs do remain low with the average two-year tracker charging just 2.43 per cent and two-year fixes averaging 2.93 per cent. But, she adds: “Landlords now have more hoops to jump through as well.”
Lenders toughened criteria in September, introducing stress tests to see whether landlords could still afford repayments if mortgage rates hit 5.5 per cent, plus tighter checks on those with multiple properties.
LET IT BE
Chris Maggs, commercial manager at lender Accord Buy To Let, says there is still a place for buy-to-let landlords: “It continues to be a lucrative venture for many.” However new investors need to view bricks and mortar as a long-term investment, rather than expecting instant returns.
He says: “You also need a significant deposit to secure your first rental property plus a nest egg to fill any rental voids.”
It is hard work being a landlord he warns: “You have to keep relationships with tenants and letting agencies, and your property needs to be managed and maintained.”
Maggs suggests seeking advice from both a mortgage broker and a qualified tax adviser. Given its growing complexity, buy-to-let can no longer be considered a go-it-alone investment.
