SarahBeenySpringIssue2017 - 55

BUYING AND SELLING ▲

BUY-TO-LET
MORTGAGES ARE
4
BECOMING MORE
COMPETITIVE

The Bank of England's Prudential
Regulation Authority (PRA) has said
mortgage companies must take more
care when evaluating landlords who
own more than three properties, and
to restrict what they can borrow. The
PRA has also set out tougher buy-tolet requirements, which compel lenders
to ensure landlords can generate higher
rents relative to their mortgage costs.
Still, confidence in the buy-to-let
sector means there are increasingly
competitive mortgage products for
landlords who meet current lending
criteria, and more new players are
entering the market. There are some
great fixed-term deals to be had, so
it pays not to take the first buy-to-let
mortgage you're offered.
When fixed rates are low, it usually
means banks expect their own rates to
remain the same or go down, so that
the banks will still generate money.

INTEREST RATES
LOOK SET TO
5
REMAIN LOW

Bank of England governor Mark
Carney has said that once interest
rates begin to rise from recent lows, it
would be reasonable to expect them
to rise slowly in the medium term.
Many experts agree that interest
rates could normalise at around 2%.
If so, most landlords can adjust as and
when rates start to creep up.

WORDS: TRISH LESSLIE, IMAGES: GETTY IMAGES

TOO FEW NEW
HOMES ARE
6
BEING BUILT

Despite being on the to-do list of
successive governments, the number
of new homes being built has
consistently fallen short of targets.
This lack of social building has
created a huge shortage of affordable
housing that could take decades to
resolve, contributing to increased
demand in the private rental sector.
There's also a shortage of skilled
British tradespeople, which could have
an impact on housebuilding. The Royal
Institution of Chartered Surveyors
says labour shortages in the sector are
the worst for almost 20 years which
can only keep supply behind demand,
pushing rental values upwards.

HOLIDAY HOMES
ARE EXEMPT
7
FROM TAX CHANGES
VisitBritain forecasts 38.1 million trips
to the UK in 2017, up 4% on 2016,
and a spend of £24.1billion, up 8.1%

SARAH
SAYS
'If you doubt
whether
property is
still a way to
make money,
look at the
evidence:
we have
more people
than homes,
land is finite,
more broken
families
means more
demand
for housing
and British
people are
obsessed
with home
ownership.'

property, usually in the buy-to-let
for the same period, with owners
sector. You get a fixed return on
of holiday homes set to profit. While
the loan over a set period until it is
holiday let properties are subject to
repaid. The arrangement is purely
the extra 3% stamp duty on second
financial - you're not getting any
homes, furnished ones are exempt
ownership rights on the property
from rules that prevent buy-to-let
your money helps to secure, and
owners deducting mortgage interest
the platform itself holds the
costs from their tax bill.
security on the loan, so it
Of course, holiday
has to take steps to get
lets have their own
your money back in
challenges - not least
the event of a default.
that rentals are far
THE POPULATION OF
Investments typically
from guaranteed. But
BRITAIN WILL BREAK
start at about £100,
it might be worth
THROUGH THE 70
but it makes sense
thinking about,
MILLION BARRIER IN
to build a portfolio to
especially if you have
10 YEARS, OFFICIAL
spread the risk.
your eye on a property
STATISTICS SAY.
If you prefer a more
somewhere you love
direct investment, you
and will make regular use
may wish to own properties
of the holiday home yourself.
with a group of other investors.
One way to do this is through
CHANGES TO
POPULATION WILL Thames Property Nest Eggs, which
offers 'syndicate-ownership' to up to
SUPPORT DEMAND
10 individuals who come together for
A high birth rate and the struggles
the sole purpose of jointly investing in
faced by the construction industry
a London property. This allows capital
have combined to put the ratio of
benefits and risks to be shared equally.
births to new homes at its highest
You're entitled to a share not only
level since the end of World War II.
of the property's rental income but
Research by mortgage insurer
also any profits when it is sold. Keep
Genworth found 6.1 children had
in mind, though, that losses are also
been born in England for every
possible if prices fall.
property built in the past four years
Read the small print carefully, as all
- more than double the ratio of 2.9
these schemes come with high risk.
in the 1950s and 2.4 in the 1970s.
According to the ONS, the number
of centenarians is predicted to rise
YOU CAN
from 14,000 in 2013 to 111,000 in
INCORPORATE
2037. This means properties will
One possibility is for buy-to-let
not be passed on to children and/or
landlords to hold their properties
return to the housing stock as quickly
through a company, rather than
as previously, potentially forcing more
in their own names, since the tax
people into the private rental market.
changes (see panel below) don't
apply to 'incorporated' taxpayers.
You can't simply move existing
INVESTMENT
properties into a company structure,
SCHEMES ARE
though. Any company you set up
AN OPTION
would have to acquire them from
It's easier than ever to invest in
you, with all the potential costs such
property without actually buying a
transactions involve.
house or flat. Online peer-to-peer
However, buying a buy-to-let
platforms such as LendInvest and
property through a limited company
Landbay let you lend directly to
could be a more viable option,
investors who are raising mortgage
especially for higher rate taxpayers.
finance to purchase residential

On the up

8

10

9

THE TAX changes
Until now, landlords were allowed to deduct all the mortgage interest they pay on buyto-let loans from their rental income BEFORE declaring it for tax. So a landlord receiving
rent of £10,000 a year, but paying mortgage interest of £3,000 annually, would have
been liable for tax on only £7,000 of income.
However, from April of this year, landlords are only allowed to deduct 75% of the
interest costs from rental income. This falls to 50% in April 2018 and 25% in April 2019.
From April 2020, the mortgage interest allowance will be zero. However, on the plus
side, buy-to-let investors are set to get a tax credit worth 20% of their interest costs.

www.athomemagazine.co.uk MAY 2017 | 055


http://www.athomemagazine.co.uk

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