Buy to Let Mortgages
Some Key Points about Buy-to-Let Mortgages
The Tax Considerations
As well as having to raise a hefty deposit, another big issue is that property landlords face a more challenging tax environment than they did previously. Since 2016, anyone purchasing a second property will have to pay a further three per cent in stamp duty. So on a £200,000 purchase, a property investor will have to pay £6,000 more than an individual buying a home as well as a minimum £50,000 deposit. Compare this with a pension contribution where the £56,000 will yield a top-up of £11,200 in basic-rate tax relief.
Recent tax changes mean that property landlords now pay tax on revenue-based rental income rather than their profit after paying mortgage interest. Buy-to-let investors also face a higher tax bill on profits when they eventually sell. Capital gains tax rate on residential property is now 28 per cent for higher rate taxpayers and 18 per cent for basic rate taxpayers. The rate is 18 per cent and 10 per cent respectively on other assets. So, you should seek expert financial advice before pursuing property investment.
Managing Your Investment
A buy-to-let investment will require time and effort. Following the lengthy buying process, you will have decisions on whether you renovate and furnish the property. Will you choose to instruct a letting agent to manage it for you? It will save time and effort, but their fees will reduce your profits. If you are willing and able to be an active and hands-on investor, the process is likely to be more rewarding.
In addition, there are many regulatory considerations. These include the requirement for an energy performance certificate and gas and electrical safety checks. Regulation is a huge consideration, and it’s in a constant state of flux, with close to 600 laws and obligations that landlords have to adhere to when renting out a property. Possible rental arrears, fallow periods between tenancies, and ongoing maintenance costs are other factors to consider. One significant repair could potentially wipe out the annual profits from your whole portfolio. That’s why it’s wise to be aware of those risks and plan for them
Rental Income Expectations
Even though increasing house prices have boosted investors’ returns in recent years, the long-term attraction for buy-to-let investing comes from the rental income. Any prospective investor must think about the yield of their potential investment before purchasing a buy-to-let property. The rental yield is the yearly percentage return you are likely to make each year on the original purchase price. The UK average gross yield is 5.9 per cent, according to Hamptons, the property market research experts. This return is skewed in favour of northern landlords, where nine out of ten manage greater than five per cent, compared with three out of ten in London.
Since house prices are at their highest levels compared to wages, the chances of repeating that same level of capital growth are slim. That’s why the focus on rental returns has become vitally important. Those considering their buy-to-let options should therefore take a long-term view. Property can still be an attractive asset offering steady yields and the potential for capital growth.
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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. There is no charge for a mortgage consultation, quotations or providing an agreement in principle. A fee of £299 is payable on submission of a full mortgage application.
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