Buy to let market hit hard

Buy to let market hit hard

Financial Advice with Kevin Clancy; Buy to let market hit hard

Changes in tax treatment for Buy-to-Let landlords have hit property investors hard this year. This March saw a drop in new mortgages of 20%, in this market, against the same period last year. The banking industry group UK Finance said, a total of 5,500 was made during this month compared to 6,800 the previous year.

In the first three months of this a total of 16,300 Buy-to-Let mortgages were issued compared to 18,400 last year. A drop of 11%. So the trend is increasing. With the recent tax changes as well as the likely rise in interest rates,the returns for investors are set to erode over the coming years. These tax changes include an extra 3% stamp duty on second home owners, the reduction of tax deductibility of interest payments and more stringent affordability tests by lenders on Buy-to-Let properties.

These measures have had the biggest effect on London and the South East where property prices have dropped as a result of falling demand.

James Cameron at property at management company Vesper Homes,said,” Many investors, both from the UK and overseas,are holding back from investing in London at present. Property prices are just too high and this coupled with the stamp duty surcharge for second home purchases means that London is not a viable buy-to let opportunity”.

Viewers of the television show ‘Homes under the Hammer’ will have seen investors still making good returns in other parts of the country. Other major cities such as Manchester, Liverpool and Newcastle are still able to offer excellent yields on properties because of lower prices. Many property investors from the South East are now looking up North to obtain better returns even in the new tax environment.

There is one silver cloud on the horizon.

First time buyers have found the chance to get on the property ladder somewhat easier. The salary multiple for obtaining a mortgage is on average slightly lower at 3.6 times annual salary compared with 3.64 towards the end of last year.

Interest payments on mortgages have been kept lower as predicted rises have not yet occurred. Salary increases, although not large, have risen faster than average mortgage repayments. Predicted mortgage interest rate rises will hit the first time buyer market and thus lower property prices going forward.

The Buy-to-Let market is increasingly becoming a market for professional investors. Those hoping to supplement their retirement income ,especially in the London area, should be very wary. The opportunities that are available are in lower priced properties outside of London,however the management of these properties should not be underestimated.

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