Thu 23 Feb 2017
By Pete Muglestone
Over the past two years we have seen a drastic shake up in the buy-to-let sector.
Starting with rental tax changes announced in 2016, which are due to take effect this coming April, whereby landlords’ entire rental incomes will be taxable.
Under the current system, landlords pay tax on the difference between their rental amount and their monthly interest payment, so it’s a big change, especially for those with a portfolio of buy-to-let properties.
In 2016, we also saw the stamp duty hike for landlords who are now required to pay an additional 3% stamp duty to the standard residential price, which is applied to the entire purchase price of the property. This change was coupled with the scrapping of the wear and tear, restricting landlords on what they can claim for.
These announcements are enough to make anyone cautious about the profitability of the buy-to-let market. However, despite the amendments to the buy-to-let market, there are a number of reasons landlords are optimistic about its continued buoyancy.
UK rental income is showing no signs of slowing down, meaning there is money to be made. According to the Association of residential Letting Agents, eight in 10 letting agents expect rents to rise in 2018.
Supply and demand
The population of the UK is growing, and according to the Office of National Statistics it is expected to reach 71 million by 2030. Plus, a growing student population supports the demand for buy-to-let landlords.
Lack of social housing
The total population of the rental market sits at 4.9 million and is the second largest housing tenure after ownership. With the lack of social housing and new private housing developments, the rental market looks to remain strong.
House prices are rising
Towards the latter end of 2016, house price inflation slowed, with Brexit being the catalyst. Despite the political unrest and prices plateauing, many experts are actually predicting a price rise. The Royal Institution of Chartered Surveyors (RICS) are predicting a 3% rise across each region of the UK. RICS also state that with growing foreign investment due to the weaker exchange rate, London prices will stabilise after recent declines.
Due to a slow housing market and the new rules set to buy-to-let mortgages, lenders are reducing their rates in order to entice landlords to purchase property. The Mortgage Works, and Accord have slashed their fixed-rate deals, whilst Nationwide is offering its lowest ever two-year 65% loan-to-value fixed-rate deal. With buy-to-let mortgage rates at an all-time low, now is the perfect time to snap up a great deal.
So as you can see, it’s always wise to take doom and gloom headlines with a pinch of salt. There are ups and downs and a certain unpredictability to any investment, but with current high supply, rising rents and low mortgage rates, the buy-to-let market continues to offer an attractive return on investment.
Pete Muglestonis is the managing director of Online Mortgage Advisor.
Source: Landlord Today