Buy-to-let dream still alive
THE government tax crackdown on buy-to-let has scared away many investors but it is still possible to turn property into your pension if you do your sums carefully.
Investment in buy-to-let (BTL) has fallen by a massive 80 per cent from £25billion to just £5billion in the last two years because of excessive regulatory intervention, according to the Intermediary Mortgage Lenders Association (IMLA).
This is a blow for many who were looking for a secure income stream in retirement to counter rockbottom savings rates and volatile stock markets.
However, experts say it is too early to give up on buy-to-let altogether, as lenders cut mortgage rates to attract new business, while the recent dip in house prices may also throw up affordable opportunities.
BUY, BUY, BUY Buy-to-let once looked like the investment of the millennium, with hundreds of thousands rushing to become landlords to benefit from rental income and capital growth from rising property prices. However, George Osborne as chancellor launched a tax crackdown on the sector amid claims that amateur landlords were pushing first-time buyers off the property ladder and its impact is being felt today.
Since April 2016, investors and second homeowners have faced a costly 3 per cent stamp duty surcharge on most property purchases. This added £7,500 to the cost of buying a £250,000 house, while Osborne also removed landlord wear-and-tear allowances.
Higher-rate tax relief on mortgage interest repayments is also being phased out, costing some investors thousands more every year.
LOW FINANCE However, there is some good news as BTL mortgage finance is cheaper than ever, according to research from MoneyFacts.co.uk. The average five-year fixed rate has fallen to 3.43 per cent, a joint record low last seen in October 2017.
The very best deals are even cheaper, with The Mortgage Works now offering a fixed rate charging less than 2 per cent, the first time this barrier has been breached.
MoneyFacts expert Charlotte Nelson said: “Five-year deals are likely to be more popular as two-year fixes are now subject to a new stress test to see if borrowers can afford rising borrowing costs.”
She warned that landlords also face stricter regulations and tougher lending requirements: “Consider seeking financial advice first.”
HIGH YIELDS Vesper Homes director James Cameron said BTL is far from dead, but opportunities vary massively from city to city: “You can probably rule out London for the foreseeable future as prices are still high and you would be lucky to generate yields of 3 per cent.”
Northern cities offer better opportunities. Cameron added: “In Manchester, you can get yields of 8 to 9 per cent plus a greater chance for capital growth as the property market is still relatively buoyant.”
The days of double-digit price growth now appear to be over with figures from Nationwide showing prices fell 0.3 per cent in February, an average drop of £1,350, although they still grew a modest 2.2 per cent over the year.
Nicholas Finn, director at Garrington Property Finders, said the housing market has settled into a pattern of steady growth, but this could help buyers: “New properties that come onto the market tend to be much more sensibly priced.”
Mark Harris of mortgage broker SPF Private Clients said this should make it easier to pick up a bargain.
He added that landlords with multiple properties have adapted to the stricter tax regime by setting up limited companies and remain in rude health: “Life is hard for novice buy-to-let investors, but it is not impossible if you do your sums.”