Buy-to-let investors could be hit again as the Chancellor Philip Hammond announced in the Autumn Statement that letting agents’ fees which are currently paid by tenants will be removed (subject to government consultation). These fees could then be passed on to landlords.
Landlords had already fallen out of favour with the Treasury as higher stamp duties on second homes were introduced and a staged withdrawal of mortgage interest relief comes into play.
The pension freedoms which came into force in 2016 were quickly followed by a raft of media stories suggesting savers should use some of their retirement cash to put down a deposit on a property in the ‘lucrative’ buy-to-let market.
Banks and building societies moved swiftly to capitalise on the trend with Nationwide amending its lending criteria to offer new mortgages to people up to age 70, with a maximum term of 35 years.
The chirpy headlines did not last long. The move earlier this year by the Chancellor to improve first-time buyers’ chances of getting on to the property ladder by curbing landlords’ profits has made some rental homeowners question the return on their investment.
By April 2020, the tax relief that private landlords receive on their mortgage interest payments will be cut from 40 or 45 per cent to 20 per cent.
Higher-rate taxpayers who own buy-to-let properties with large mortgages will pay significantly more tax than before. Research shows that some could see the new tax levels pushing them into a loss situation – particularly if the Bank of England raises the base rate of interest.
Even before this bold change, buy-to-let yields were not what they once were. Some 15-20 years ago, landlords might have enjoyed rental yields of around 15 per cent and house values which jumped substantially with inflation.
Today those yields might be more like five or six per cent and in London, much lower. Then take into consideration the managing agent’s fees, maintenance and insurance and the returns look much less.
The latest monthly figures compiled by the Council of Mortgage Lenders show that the amount buy-to-let landlords borrowed fell by 22 per cent year-on-year since 2015.
Is property still the right investment for you? For a look at the facts behind the myths, please call one of our advisers for a second opinion on 020 7636 7006.