Rents Set to Rise with Fewer
Buy-To-Let Purchases Predicted in 2017
Buy-to-let purchases look set to fall in 2017, which could reduce property prices and increase rents, making this a potential opportunity for property investors.
The Council of Mortgage Lenders (CML) has predicted that the number of new tax and regulatory changes will dampen demand for buy-to-let properties in 2017. The organisation suggests that a number of headwinds, including stamp duty rises, the reduction of mortgage interest tax relief and the removal of the 10 percent wear and tear allowance, will lower property investors' appetite to buy.
The Prudential Regulation Authority has also confirmed that it will be bringing in tougher buy-to-let underwriting standards, including a minimum stress test of 5.5 percent for the first five years of the mortgage. However, this won't apply to mortgages that are fixed for at least five years. Consequently, although the CML says the overall mortgage market is resilient and will 'plateau' in 2017, buy-to-let lending is likely to decline.
Tax and regulatory changes bite
In terms of buy-to-let mortgage figures, the CML predicts that total lending for all types of mortgage in 2017 and 2018 will be £248 billion, rising to £252 billion respectively. This is approximately the same level as in 2016. However, it expects to see a fall in the value of buy-to-let mortgages. Any strengthening that will be seen in the market will be largely offset by this decline.
But lending is not the only indicator of the health of the buy-to-let market. As a result of the fall in the purchase of buy-to-let properties, rents are also predicted to rise, which will be good news for existing buy-to-let landlords. This will contrast with figures for 2016 from lender Landbay, which shows average rental price growth was halved from 2.34 percent to 1.12 percent over the course of the year.
The predicted fall in the number of buy-to-let purchases in 2017 could present a real opportunity for property investors who are willing to pay the additional stamp duty surcharge and contend with the reduction in mortgage interest tax relief. The fall in demand will inevitably lead to a reduction in house prices, so there will be some good deals out there for those looking to buy.
Chief executive of the CML, John Goodall, also expects rents to start rising again in 2017 as landlords withdraw from the market and tenants compete for fewer properties. As a result, rents are expected to rise faster than the pace of inflation, despite the predicted inflationary upturn, with rental growth tripling to 3 percent by the end of 2017.
How to capitalise
So, if you like the sound of lower house prices and increased rents, how can you limit the impact of the tax and regulatory changes?
â— You could switch to a short-term fixed rate mortgage deal to benefit from lower rates of interest, although these mortgages do carry more risk.
â— You could place your property portfolio in a limited company structure. You would then pay corporation tax (which is lower) rather than income tax on your profits. A potential drawback is that mortgage options will narrow slightly.
â— If your spouse pays a lower rate of income tax, you could transfer ownership of one or more properties to them while taking care not to lift them into a higher tax band.
The help you need
If you have any questions about the best way to structure a buy-to-let purchase, or want help finding the most in-demand property types in Camberley and the surrounding area, please get in touch with the team at Martin & Co. Camberley today.
Get in Touch:
t: 01276 691510www.martinco.com/lettingsagents/camberley