The buy-to-let market looks set to change in the coming years as April’s tax changes start to bite. Buy-to-let landlords have already faced changes in Stamp Duty Land Tax in England and Wales, and Land and Buildings Transaction Tax in Scotland. New landlords, or those wanting to take on new loans, will also find themselves subjected to tougher underwriting standards operated by lenders.
The Council of Mortgage Lenders believes that the size of the buy-to-let market will fall in the next couple of years from the £40bn level seen in 2015 and 2016. Some commentators are suggesting that the contraction could be to around the £30bn mark.
Landlords are relying more on cash in the face of tougher lending criteria. According to estate agents Countrywide, the proportion of landlords purchasing properties with 100% cash has steadily increased from 41% in 2007 to 61% today. In the face of the tax changes, some landlords have decided to set up limited companies. By doing so, they can borrow through the company and still offset their finance costs against their rental income. However, this solution doesn’t suit every buy-to-let landlord’s investment strategy, and some commentators have suggested that the government might make this subject to tougher taxes too. The limited company route can also give rise to potential stamp duty charges and capital gains tax liabilities.
Landlords are also turning their attention to commercial property, with the number of residential landlords diversifying into commercial property tripling in the past three years. They are now opting for shops, restaurants and offices as alternatives, with retail units and small offices proving particularly popular.
A DIFFERENT MARKET
Landlords opting for commercial property will need to be able to evaluate a business and the quality of a tenant when considering offering a commercial tenancy. With businesses like cafes and small shops, it’s important to know the local area and be able to gauge if the business is likely to succeed. Commercial property landlords will need to familiarise themselves with the rules surrounding commercial leases, the rights a landlord has and the responsibilities of the tenant.
Commercial property can offer various benefits. The yields are generally higher and many of the costs that a landlord has to deal with under a residential tenancy are the responsibility of the tenant under a commercial let.
GET PROFESSIONAL HELP
Buy-to-Let and being a Landlord is not for everyone, be aware that there can be some very complex calculations and transactions involved, as well as several unknown quantities (such as, will you be able to get tenants for the rental property straight away?).
For these reasons, it’s always recommended that you consult an independent mortgage broker – both to confirm that this decision is the right one for you, and to source the mortgage you need and manage the application process.
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.