A key consideration for BUY-TO-LET landlords is to gauge the levels of ‘supply’ and ‘demand’.
Whilst landlords also face a number of tax and regulatory issues, the demand for renting is still fairly strong, as everyone knows we aren’t building enough homes to meet the needs of a growing population. This – combined with the difficulties many renters face in getting together a suitable deposit to exit the rental sector and enter the home purchase arena – will help to maintain demand.
Of course, there are marked regional differences, so if you’re currently a landlord, or wish to become one, you need to do your homework and assess how it may pan out in the areas in which you operate, or plan to operate, and the type of renter you’re after.
Dealing with what’s in front of you
From April 2017, tax relief on landlord’s mortgage costs is restricted to the basic rate of income tax. And, over the next three years, the proportion of borrowing costs that landlords can offset against tax will taper down to zero.
Additionally, landlords face new rules restricting other deductible expenses they incur from renting property, such as limiting tax relief for wear and tear in fully furnished properties.
Landlords have also faced higher rates of stamp duty on property purchases, as anyone who buys a second home has had to pay 3% on top of the normal rate of stamp duty. This means that each investment by a landlord will have a stamp duty bill of at least 3% and possibly as much as 15% of the purchase price.
The final strand in these developments relates to greater regulatory requirements from the start of this year. This required lenders to consider likely future interest rates over a five-year period (unless the loan rate is fixed or capped for five years or more). Specifically lenders have to:
– Stress test their lending against an expectation of an increase in buy-to-let mortgage rates of at least 2%.
– Assume a minimum rate of 5.5%, even if the stress test of a 2% increase would actually produce a lower rate than that.
And there’s more! From 30 September 2017, the Prudential Regulation Authority (PRA) will implement special underwriting rules for landlords with a portfolio of four or more managed properties.
If you do have four or more properties and feel that you want to take advantage of the current excellent deals on offer* – where, in many instances, there has been a healthy reduction in rates and costs over the last 12 months – now may be the time to act. Particularly as it means you would be taking action ahead of 30 September, thereby borrowing in a less restrictive environment.
(Source: *Mortgage Brain, May 2017)
Of course, into the future the current and ongoing political and economic environment may influence the regulatory controls. But, in the meantime, it’s important to take advice and deal with what’s in front of you.
There is no guarantee that it will be possible to arrange continuous letting of the property, nor that the rental income will be sufficient to meet the costs of the mortgage.
The value of your Buy-to-Let property and income from it can go down as well as up. You may also require advice on the legal and tax issues.
The Financial Conduct Authority does not regulate legal and taxation advice, and most Buy-to-Let mortgages.
HM Revenue & Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.