The buy-to-let mortgage is a type of mortgage designed for people who are interested in buying a property for rental purposes. With the Bank of England’s base rate cut to just 0.25% – meaning monthly payments on certain mortgages have now reduced – and rents increasing sharply in 2016 – 5.1% outside London and 7.7% in the Capital, private landlords can make a good return on their initial investment – providing they have done their research on the property market.
Is buy-to-let a good idea?
This will depend on how much risk you’re willing to take. Property investment means that your money will be tied up in the home, so it will take a long time for it to start turning a profit – especially as you’ll have to pay for refurbishments and essential maintenance.
However, when you manage to secure a tenant, you will have a regular source of income at your disposal, so it’s not hard to see why buy-to-let may seem so attractive to buyers – even more so now the return you would get on a savings pot is significantly reduced.
How do buy-to-let mortgages differ from residential mortgages?
Thorough research into the housing market is required before you take out a buy-to-let mortgage. You must analyse how much you expect to make in rent from the property because you will need to prove that you have enough income to make the repayments.
However, with the uncertainty surrounding the housing market following the UK’s decision to leave the European Union, some lenders have tightened their guidelines on buy-to-let mortgages which could make it a less popular option moving forward.
In May 2016, Nationwide changed the rules for landlords, saying they must make far more income relative to the cost of their mortgages. This new ruling could be difficult to adhere to – especially if properties lie empty for a prolonged period.
Tax changes on buy-to-let mortgages
Perhaps one of the biggest changes that may affect the popularity of buy-to-let mortgages will happen in April 2017. Tax relief on mortgage payments is being slashed. Regardless of income, everyone will be subjected to a tax relief rate of 20%. This was 40% and 45% in the past for higher earners.
The Nationwide Building Society estimated that, under the new system, the profits on a £200,000 house with a £150,000 mortgage could fall from £2,160 a year to just £960 a year. Could this severe cut in net profit mean that the risk of securing a buy-to-let mortgage is no longer worth it?
How will I know which way to turn?
Buy-to-let mortgages are undergoing some rapid changes in the near future, so it may be difficult to decide which option is best for you. This is where a firm such as Enness Private can step in.
It’s important that you get a mortgage that is suited to your financial status and the property you want to buy, so taking advantage of a network of private lenders to help secure the best deal and protect yourself from the changes that are coming is the best way to go.