Since April 2016 the buy-to-let market has dramatically slowed down mainly due to the introduction of the extra 3% stamp duty land tax imposed on the purchase of a second property.
In the grand scheme of things, if you plan to own an investment property for the long term, and imagine dividing that 3% over the number of years you are to own it, it doesn’t have as much significance as it first seems. There is however a mental hurdle people need to get over, in that we don’t like paying something that wasn’t there before, or was cheaper before.
Until recently buy-to-let mortgage lenders had been very slow to react to the period of long term low interest rates, until the extra 3% tax changed the game. Since then, lenders have been fighting back, and have been dramatically reducing interest rates in a bid to win back potential investors. Interest rates for buy-to-lets have now fallen to a level where, even taking into account the extra 3% stamp duty, investing makes much more sense now than it did 12 months ago in a lot of circumstances.
At the time of writing there is currently a ten year fixed at 2.99% buy-to-let mortgage deal available. Given where the market was five years ago, it is an unbelievable product and offers potential landlords a very low cost of borrowing, with long term certainty.
There is however another game-changer on the horizon. The tax treatment of income is set to affect the profits of those higher earners. The exact rules are complex and so advice should be sought in this area. These changes are being phased in from April 2017 over a five year period, and if they will affect you, then you should keep them in mind when making your decision on this type of investment.
Jason Hinde FPFS, Cert SMP – Chartered Financial Planner
27th February 2017