Despite home ownership remaining amongst the main aspirations of the UK’s adult population, it remains elusive for some, leaving around a sixth of the population – some 10 million people – now living in accommodation rented from private landlords.
Continued house price rises have seen unrelenting rental demand, 46 per cent above average according to Zoopla, whilst the supply of homes is down 38 per cent causing average rents to rise by 11.1 – an attractive proposition for those investing in the buy-to-let sector.
The picture however may not be quite as rosy as it seems on the surface with Landlords facing pressure from all quarters.
Buy- to- let Investors with mortgages face rate increases, seeing their margins squeezed, with the typical rates of borrowing having risen from 3.18% per cent to 6.26% per cent over the past five years.
Whilst interest rates remain high for remortgage products some landlords will decide to shift onto tracker rate mortgages, which may offer more flexibility.
In addition to increased costs of borrowing Landlords are now also paying more in tax.
In the past Landlords could take advantage of generous tax breaks such as offsetting mortgage costs against tax.
This tax break was phased out from 2017 before being stopped completely in April 2020.
Since the advent of new legislation ‘Section 24’ often referred to as ‘Tenant tax’ landlords receive a tax credit instead, based on 20 per cent of their mortgage interest payments.
As a result many Landlords have opted to create limited companies to operate their buy to let businesses. For those thinking of creating a limited company – it is interesting to note that that mortgage interest is treated as a business expense, meaning if the property is owned by a limited company, they can deduct the cost before paying corporation tax.
Although many Buy-to-let investors are looking ahead with trepidation many refer to the cyclical nature of the markets, deciding that property remains a reliable investment and some will adapt their business models and take advantage of the purchase opportunities left by those landlords who do decide to sell up and leave the market.
Whilst we at Askews cannot predict the future for the buy to let market we can undertake all aspects of Conveyancing from transfers to sales, purchases and remortgages in order to assist landlords in weathering the storms ahead. To discuss please contact our property department today.