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BUY-TO-LET – WHAT DOES THE FUTURE HOLD?

Being a buy-to-let landlord is much tougher than it once was. Many landlords entered the market a few years ago, attracted by the low interest rates they were charged for borrowing money, and the tax relief that was available to them on their mortgage interest payments.

However, during George Osborne’s Chancellorship, changes in the tax rules were announced that reduced the mortgage interest tax relief available, and additional rates of Stamp Duty (and equivalent taxes in Wales and Scotland) were imposed on those buying second homes or buy-to-let properties. This means that landlords are set to find their income tax relief on mortgage interest restricted to 20% by 2020. Plus, the recent rise in interest rates has meant the cost of borrowing has gone up. More landlords are setting up as limited companies for tax reasons; 18% of private rentals in England are now owned by limited companies.

BUY-TO-LET ISN’T DEAD YET

Despite the tax changes and the potential for buy-to-let mortgage costs to rise, landlords are still entering the market. Renting remains buoyant; plenty of people prefer to rent or feel priced out of the property ownership market and need somewhere to live.

If you’re thinking of becoming a buy-to-let landlord, it makes sense to begin by working out how much it is likely to cost to buy a property, what your borrowing costs will be, and what expenses you’ll incur putting it on the rental market.

You’ll need to factor in all the associated costs, such as gas and electricity safety inspections, insurance, regular maintenance and any agent’s costs, if you intend to use a letting agent. Then you’ll need to work out how much rental income you’re likely to make, including any periods where the property might be empty, and you won’t be receiving rent. This calculation will help you assess whether this type of investment is worthwhile for you.

When looking for a property, one near good transport links and with easy access to local amenities is always likely to be attractive, so choosing the right area is important. It also pays to form a view of the type of tenant you expect to attract; that way you can opt for the right décor. If you’re aiming to attract students, clean and comfortable would work, but if you’re thinking of young professionals, something more modern and stylish might be more appropriate.

A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

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