The Good, The bad and the Ugly of buy to let mortgages

Buy To Let
Interest rates on buy-to-let mortgages continue to fall, while the variety of deals on offer rises.
Skipton Building Society is the latest to cut its rates, shaving up to 0.18 percentage points off its two-year fixed rate deals. They now start from 2.19 per cent while its five-year deals now start from just 3.69 per cent.
‘I’ve been investing for years – there are ups and downs’
Long-term landlord and buy-to-let commentator Sanjay Arora sees clouds on the horizon for some buy-to-let investors – but believes the outlook can still be good.
Sanjay, a former accountant, owns more than a dozen homes in his native Berkshire.
He says: ‘I have been investing in property for many years so I have seen a lot of ups and down.’
He adds: ‘You do have to be utterly professional as a landlord – which means dealing with requirements for everything from gas safety to the immigration status of your tenants. It’s also important to be up-to-date with the tax situation so you don’t face any nasty surprises when you try to balance your books.’
Sanjay, who uses broker Landlord Mortgages to find the best mortgage rates, favours five-year fixed rate deals. Latest best buys come from buy-to-let specialists such as Accord, Godiva and Platform and high street names NatWest, Santander and Virgin Money.
Specialist lender Paragon has also re-launched its range of fixed and tracker rate deals – and introduced new ‘stepped rates’ where your payments can start low and rise gradually as the years go by.
Meanwhile, research from investment house Fidelity suggests that demand for buy-to-let may stay high, especially with people continuing to release cash from their pension funds.
Maike Currie, investment director at Fidelity, says: ‘For many people property remains a no-brainer and while there are issues over illiquidity and unpredictable maintenance costs, it remains hugely popular with retirees.’
Financial data scrutineer Moneyfacts says that the average new two-year fixed rate buy-to-let mortgage is currently priced at 3.32 per cent, down from 3.59 per cent a year ago and compared with 5.21 per cent five years ago.
The immediate worry is the stamp duty hike that began on April 1. That means all buy-to-let investors now have to make extra stamp duty payments of 3 percentage points on the property purchase price.
Under the old rules anyone buying a home for £200,000 would pay nothing on the first £125,000 and then 2 per cent on the rest, producing a bill of £1,500.
The new buy-to-let premium means investors now pay 3 per cent rather than zero on the first £125,000 and then 5 per cent rather than 2 per cent on the remainder. This results in a new bill of £7,500.
Sandy Ameer-Beg, mortgage broker at Acclaimed Mortgage Consultancy in Coventry, says: ‘The changes dramatically increase the set-up costs for investors and mean you will have to wait a long time to recoup the money and feel you are making a comfortable profit.’
In the business: One of Sanjay Arora’s buy to let properties in the Midlands
The longer term financial health of buy-to-let will weaken even further from next year.
Investors will start off facing limits in the amount of mortgage interest they can offset against their rent before working out how much income tax is due.
The changes are complicated – there is more information at if you search ‘Individual Landlords’ – and will hit higher rate taxpayers the most. Critics say the changes may turn many profitable buy-to-lets into loss-makers – and force some landlords to sell up.
Equally worrying will be cuts to the useful ‘wear and tear’ allowances that let investors offset many maintenance costs against their rental income before working out their tax bill.
Without these there are fears that more investors may find monthly profits far harder to achieve.
Anyone selling a buy-to-let will have to pay what will soon be a premium rate of capital gains tax – as new, lower tax rates announced in the 2016 Budget will not apply to profits from property.
Finally, new Bank of England inspired restrictions on who gets a buy-to-let mortgage are being introduced over the coming months.
Lenders are now expected to consider a customer’s wider financial situation – looking at all their monthly income and outgoings – rather than just considering rental income on the property they want to buy.


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