Buy-to-let purchases at 9-year low

    Buy to Let 612 x 408

    New research from estate agents Hamptons International shows that landlords are buying fewer homes than at any time in the past nine years.

    In the first half of 2018, landlords across the UK bought 64,260 properties – 13% less than the same period in 2017, and a third less than in 2015.

    Why is Buy-to-Let no longer as popular?
    The tide began to turn against buy-to-let investors after a series of tax reforms and regulatory changes knocked investor confidence.

    What were the changes?
    Tax reforms to buy-to-let properties included tax relief on full mortgage interest being phased out. Instead it will be replaced with a 20% tax credit by 2020.

    The loss of full mortgage interest tax relief has eaten heavily into returns for many landlords. Higher-rate and additional rate-payers are likely to end up with a larger tax bill as a result.

    A new stamp duty surcharge was also introduced for landlord buyers in 2016, adding 3% to the duty paid by buy-to-let or second home purchasers.

    With the average purchase price of a buy-to-let property now £174,580, landlords are therefore paying an additional £5,238 in tax.

    Both of these changes have impacted landlords’ profits. Furthermore, The Bank of England has tasked lenders with “stress testing” loans and imposing stricter conditions on lending to those with four or more properties.

    What are the benefits of buy-to-let?
    Depending on your portfolio strategy, it may not be all doom and gloom. Some experts believe this is an opportunity for landlords, as a decreased appetite for buy-to-let mortgages has caused lenders to offer record low rates. It’s also creating less competition between landlords for properties as well as tenants.

    Many investors are hoping the downward trajectory will soon be over, while in the meantime they are taking the opportunity to snap up bargains.

    And despite these changes in government policy, the private-rented sector is predicted to grow as many struggle to get on the property ladder. Hamptons International estimates that by 2022, 20.5% of all UK households will be renting, up from 19.4% in Spring 2018. It predicts 6 million households will be renting by 2025.

    So, as an income investment, buy-to-let still looks attractive – especially compared to currently low savings rates and coupled with cheap mortgages.

    What other factors should be considered?
    Some areas of the UK are still trying to regain the ground lost during the housing slump caused by the financial crisis, and investors are increasingly looking for stronger returns in these areas – particularly in the North and away from London and the South East.

    Finally, experts are warning landlords taking out new mortgages to be mindful of low rates. Currently, mortgage rates are an investor’s dream, but at some point when they do rise you’ll need to be sure your investment is robust enough to still be profitable.

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