Let's start by being positive and there are some good things to say about the market at present.
1. Interest rates are low. Deals at 3% or below are a great help to maximise your rental profits. It is a good time to make sure your payments are fixed and you are keeping your mortgage costs as low as possible.
2. There are more buy to let lenders in the market than at any other time in the last 5 years. More lenders = more competition = more choice = better rates. Lenders are keen to take advantage of this sector of the mortgage market and they are showing a willingness to lend at decent prices.
3. There is a high demand for rental property. With house prices so high and large mortgage deposits required for home ownership, more people are renting later into their life before taking the plunge and buying. So your property is not going to sit empty for long.
However, there have also been some rules, regulations and tax changes that are undoubtedly going to have an affect on the future profitability of this type of investment.
In no particular order, these are:
a) Many lenders have changed their rental calculations in the last few months meaning you get less money lent to you for the same rental income. This change in criteria could make as much difference as £25,000 worth of lending. This will not harm long-standing landlords so much but those new to the market will find it harder to release capital going forward.
b) Stamp Duty. Announced yesterday, all purchases from April 2016 that are with the intention of letting or a second home will be subject to an additional stamp duty surcharge of 3%. So you will need more money upfront to fund a purchase.
c) Tax Relief on mortgage interest. This will reduce until 2020 until when you will only be able to claim tax relief on the mortgage interest to the basic rate of 20%. If you are a basic rate taxpayer, this will not have much impact but if the profit tips you into the 40% bracket, you will end up paying more tax.
d) Capital Gains Tax. The allowance is £11,100 each for 2015/16 but if you make more money than this if you sell your buy to let, then you will be subject to tax now at either 18% or 28% depending on your income or total gain. To make matters worse, from April 2019, this tax will be payable within 30 days of the disposal of your property.
e) Wear & Tear Allowance. Previously you could claim 10% of your rent regardless of what you had really spent but now you will only be able to claim on this allowance when you actually replace furnishings.
So let's summarise these changes for those of you who are thinking about buying to let or already have a property you let out: it is going to cost you more to buy a property and you will be able to borrow less to achieve that. Once you have it, your profit won't be as good and you will pay more in tax. So if you decide to sell as this is no longer working for you, you are going to get clobbered with even more tax - that you have less time to pay than before.
Having created this negative picture, I would just like to remind you again of positive points 1-3 mentioned above.
Buying a property to let can still work for you - and can still make you money - despite the government's best efforts to hit you where is most hurts.
If you would like to consider buying a property to let or discuss your existing portfolio, then please do not hesitate to get in touch on 0844 736 1920 for an informal chat.
YOUR PROPERTY IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE