Is it too late to join the buy to let boom? Tax changes and the impending base rate rise have cast a bit of a cloud over an area which has proved extremely lucrative in recent years. Buyers have benefited from rising house prices, and capitalised on the rock-bottom interest rates which have made the cost of borrowing lower than ever. The papers this week, however, would have even the most optimistic investor withdrawing into his or her shell. Here, we consider a way around the new tax affecting buy to lets, and cast an eye over the key considerations for landlords.
Buy to let has for some years been a flourishing sector offering huge returns. Unsurprisingly, it has caught George Osbourne’s eye. It was announced in July’s budget that tax relief on mortgage interest is being slashed; landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate the tax due. While these changes are unlikely to make any landlord fundamentally alter his or her plans, it will be a case of making sure the maths still works out on each new purchase.
Another important consideration is rental yield. Because London’s property prices are high, the best yields as a proportion of the property’s cost are often to be found elsewhere. The picture for London landlords, however, is relatively rosy. Islay Robinson, CEO of Enness Private Clients, is optimistic: ‘Wages are expected to rise and demand for houses continues to outstrip supply. Particularly in areas like London, it’s likely that we’ll see rental yields increase.’
The latest instalment in the base rate rise saga was also good news for landlords in the short term. Forecasts for a hike have now been pushed back to late 2016, and lenders desperate to attract borrowers in an increasingly competitive market have slashed their rates. This early burst of Christmas cheer won’t last long, and if you haven’t already it is worth investigating some of the deals available. Of course, it is still sensible to factor the effect of the rate rise into calculations when considering a new purchase.
Letting holiday homes has always brought tasty returns; a two bedroom cottage can bring in around £15,000 a year. Its appeal is greater than ever at the moment, because the new tax won’t affect it in the slightest. Under ‘furnished holiday letting’ rules, you can offset all expenses including full mortgage interest against the rental income.
So what is stopping landlords from cashing in? Loans to finance holiday lets can be tricky to come by, with many lenders unwilling to consider them – or at least, that is what most brokers will tell you.
In fact, there are some specialist lenders who are more than happy to lend against holiday homes; some even have dedicated ranges of holiday home mortgages. To get access to the best deals, you need a mortgage broker with national reach and strong relationships with their underwriters.
At Enness we have, in the words of The Spear’s 500, ‘leverage with every lender who will lend in the UK’. If you want to look into your choices, please do get in touch. We will be more than happy to talk through your options with you.