3.3 Property investment – a boom in buy-to-let investors
In this video Shaun Cummings explains how he got started in buy-to-let and shares tips with those thinking of this type of investment. He also looks at the pitfalls.
The UK has seen a boom in buy-to-let investments in recent years, partly as a result of the low interest rates which have made many people seek alternatives to savings products. The boom has also been supported by the growth in demand for rental properties from those not in a position to buy their own home.
Buy-to-let mortgages normally have higher interest rates than mortgages for purchasing your own home. The deposits required from those borrowing to finance the purchase of buy-to-let properties tend to be higher too. This is because of the risks associated with such lending – particularly the fact that the ability to repay the mortgage is linked to receipt of rental payments by the tenants of the properties. If tenants default on rental payments or if the property is empty (‘void’) for periods of time, the buy-to-let landlord may struggle to keep up with their mortgage repayments.
This boom might be coming to an end though. In July 2015 the government announced that, from the 2017/18 financial year, the tax relief that landlords receive on mortgage payments will, in stages, be reduced to 20 per cent. Currently landlords can receive tax relief up to 45 per cent, the highest marginal rate of tax on incomes. This move may lead to some landlords quitting the market and selling their properties. One alternative, though, is that the additional mortgage cost arising from the reduced tax relief will be passed on to tenants in the form of higher rents. This, though, could result in some tenants opting to buy their own property instead of carrying on renting.
From April 2016, those buying property to let out have also become liable to a 3% surcharge on the Stamp Duty Land Tax (SDLT) paid on property purchases. This may also take some of the heat out of the buy-to-let market.