Property has long been seen as a safe investment in the UK, with both local and foreign investment pouring into the market for many years. With a shortage of housing, and rents constantly on the rise, it was a decent investment for many years. However, recent months have seen lots of changes to buy to let rules, and when combined with the uncertainty of the property market caused by Brexit, some landlords are seeing it hurt their bottom line. If you’ve invested in UK property to let, how will these changes affect you? And is it time to put those properties up for sale?
One big change that buy to let landlords may see in upcoming months is that it’ll become more difficult to borrow. Brexit has made banks extremely nervous about lending, especially on riskier investments such as buy to let. Investing in a buy to let now, when the property market could potentially take a dive, is a big risk, and you may have trouble convincing a bank that now is the best time to expand your property portfolio. Most banks will want to see that the expected rental income will cover 125% of the mortgage, and you’ll need a much bigger deposit, sometimes as much as 40%.
Changes to stamp duty on April 1st 2016 mean that it’s now more expensive to purchase a buy to let. If you already own a property, then each subsequent property you buy will be charged an extra 3% in stamp duty. The higher rate of stamp duty will apply to anywhere deemed an ‘additional property’, and properties you own abroad will be included in the calculation. This means it’ll become more expensive to buy a property for the purposes of letting, which will eat into your overall profits.
The 2015 budget saw the chancellor change the tax rules on buy to let properties, which again, will affect how much you make from your properties. There’s no longer tax relief on mortgage interest, meaning landlords are going to be taxed on their turnover rather than their profit. If your margins are already narrow on certain properties, this could wipe out profits in the long run. Unless you’re well off enough to buy properties outright, you’ll probably see a dip in profits from 2017, when the phased increases will begin.
Some landlords are now thinking of pulling out of the property market, and you may be tempted to start selling your houses. It’s important to get proper financial advice before you make any big decisions like this, and to carefully weigh up the pros and cons. Another knock-on effect of the looming Brexit is that property prices are starting to fall, and some estate agents have reported that nervous buyers are pulling out of deals. If you want to sell a buy to let property, you could use a property buying service, or look for options such as selling via auction. Whether you sell up will obviously depend on a lot of different things, such as potential rental profits vs a lump sum for selling, the property market in the area, and how much mortgage you still have left to pay. That’s why it’s worth getting expert advice before you put up the For Sale sign.
It’s certainly not an easy road ahead for Britain’s buy to let landlords, and property is no longer the easy investment it used to be. That’s why it’s important to do your research now, and to think about the impact of changes in the next few years. A few simple calculations to see how much your profits will be affected will give you an idea of what to expect, but it’s important not to be hasty, to think long term, and to get independent investment advice before you act.