The buy-to-let market’s death knell has regularly been sounded for a while now – largely as a result of wider economic turbulence as well as a raft of tax and regulatory changes. However, in a recent survey by Nottinghamshire Building Society, 80% of buy-to-let landlords were found to remain keen on keeping all, or at least part, of their existing property portfolios.
Admittedly, some landlords have recently thought twice about continuing with buy-to-lets and decided to sell up while house prices are increasing. However, there is good reason to believe that these prices could continue increasing for a while yet.
In summer 2021, after the buy-to-let market was temporarily shaken by the COVID-19 pandemic, many lenders started offering more attractive buy-to-let mortgage terms – including by increasing maximum loan-to-value (LTV) amounts from 75% to 80%.
Consequently, securing a buy-to-let mortgage does not necessitate quite as hefty a deposit as it once did. Whereas a buyer would have previously needed to put down a deposit of £75,000 for a house commanding a £300,000 purchase price, the required deposit would have more recently dropped to a more manageable £60,000 as a result of the LTV change.
Interest rates on buy-to-let mortgages have also remained historically low, with lenders increasingly introducing fee-free deals. Therefore, now could be the best time in a while to become a buy-to-let landlord – especially as the demand for rental properties looks on course to keep rising.
As figures from Statista reveal, while two million UK households lived in private rented accommodation at the turn of the millennium, the number in 2021 was 4.43 million. Furthermore, some experts believe that, by 2045, 55% of the UK population will live in the rental sector.
It is true that a number of tax changes in recent years could have given many buy-to-let investors food for thought. A 3% higher rate of stamp duty now applies when landlords acquire a new property, while landlords must also shell out an extra 8% in capital gains tax when selling a property.
A number of other changes have eaten into landlords’ rental income. For example, ‘wear and tear allowance’ – a 10% income tax relief for helping to cover maintenance costs – has been axed, while landlords can no longer write off mortgage interest against their profits before paying tax.
Now, buy-to-let landlords are simply handed a flat-rate tax credit based on 20% of their mortgage interest. So, whatever income these landlords have used to pay the mortgage, they must declare this on their tax returns – rather than, as previously, declare it after deducting mortgage payments. In essence, many landlords may have been nudged into higher tax brackets than before.
Nonetheless, if house prices continue to rise as they have largely done over the last two decades, you could find that these additional costs are more than offset by your growing rental income. In short, despite its challenges, buy-to-let remains a promising investment opportunity – whether or not you intend to rent out properties for the foreseeable future or sell up at some point down the line.
All the same, where exactly you snaffle rental properties can undoubtedly prove a major factor in how much revenue you make from them. This is why you should be careful to research different geographic areas of the UK’s buy-to-let market before you pour money into them.
