Making a move into the world of property investment has always been a major decision. But this year there’s more to weigh up than ever. We look at three pros & cons to help you decide whether you become a landlord…
1. Cheaper property
Waiting for the housing market to cool before making your buy-to-let debut this year? You might be in luck. In the lead-up to the EU referendum the Chancellor, George Osborne predicted house prices would fall 10% by 2018 if the nation voted ‘out’. And ratings agency Fitch went further forecasting falls of 25%. Data by Zoopla in revealed that nearly a third (29%) of all properties had seen their asking prices reduced since first being listed.
2. Lower mortgage rates
Whatever your view on Brexit, it’s created cheaper mortgages. The cost of mainstream residential deals has already been cut – with some 5 and 10-year fixed rates now reaching all-time lows. Buy-to-let loans will soon follow suit.
It’s in anticipation of the Bank of England cutting interest rates in a bid to mitigate weaker economic growth post-Brexit.Although be aware that the Bank’s Governor Mark Carney has warned homeowners to prepare for a 3% rate rise in the next few years – so now could be a good time to fix.
3. Less EU red tape
No longer being a part of the EU could not only result in less red tape for new landlords – but even a reverse of existing EU legislation.
EPCs could be one item to be removed from a the buying & selling process. They were first introduced as part of a EU Directive in 2007 and have been a legal requirement for landlords letting property since 2013. Each report costs around £65, putting the total annual bill for landlords and home sellers at an estimated £100m a year.
1. Less tenant demand
If Brexit results in tighter controls on migration, demand for rental property could wane. After all, immigrants are three times more likely to rent a home than UK nationals, according to official figures.
Lack of demand would also result in cheaper rents which new landlords will have to factor into their sums. Don’t forget new Right to Rent rules which put the onus on landlords to check their tenants have the right to be in the UK.
2. Much bigger Stamp Duty bills
One thing that’s not up for debate is the extra 3% that will now be slapped onto your Stamp Duty bill if you already own a home (anywhere in the world) and want to buy an additional investment property in the UK. The rules apply to all sales that completed after 1 April 2016. And, unlike regular Stamp Duty, the extra 3% will be charged as a flat rate on the entire cost of the property!
3. Harder to borrow
The cost of buy-to-let mortgage rates may be set to get lower this year, but there’s a bigger sum that needs to stack up – the relationship between likely rental income on a property and the cost of monthly mortgage interest.
To date, buy-to-let mortgage lenders have used typical rent-to-interest ratios of 125% (so your rental income would need to equate to 125% of your mortgage interest payments).
But, in a probe into the buy-to-let market, the Bank of England’s Prudential Regulation Authority (PRA) has been recommending that lenders raise this ratio, with some lenders already moving to between 140% and 145%, which will significantly reduce the amount landlords can borrow.
With all this in mind, are you still keen on becoming a landlord in 2016…?