2014 - A look ahead a buy-to-let investment

2014 - A look ahead a buy-to-let investment
An estimated 60 per cent of landlords are planning to expand their portfolio in 2014, causing buy-to let lending to reach £25 billion by the end of the year, according to research by Mortgages for Business. Such promising research suggests a prosperous time for buy-to-let investors and with demand for tenancies as strong as ever, it seems that this year could be an exciting one for investors.

But is this optimism reflecting reality? We look ahead at what 2014 has in store for buy-to-let investors.

Low interest rates means that borrowing costs are at an all time low.

Despite initial concerns that interest rates would rise in the new year, Bank of England Governor, Mark Carney, has pledged not to consider rising rates until unemployment levels hit 7 per cent. Currently the unemployment rate has already fallen to 7.1 per cent, but investors should not worry, as Carney has vowed that any increase in rates will be gradual. So what does that mean for buy-to-let investors?

With interest rates at the historic low of 0.5 per cent, the cost of borrowing has hugely decreased, making it an appealing option for many. But although it seems as if interest rates are likely to remain low in 2014, investors should be prepared for the inevitable rise and ensure that they are able to stand their ground when this does happen. Savvy investors should seek financial advice and look at ways to compensate this, such as placing larger deposits or considering fixed rate mortgages in the latter part of the year. The key is ensuring that the great deal you are currently getting remains to be cost effective for the foreseeable future.

Rising property prices means that landlords will find it harder to get themselves a bargain.

The Office for Budget Responsibility predicts that house prices will rise by a whopping 27 per cent by 2018, making property even more unaffordable for many. Long gone are the days that investors could grab themselves a bargain. With rising house prices and floods of first time buyers fuelled by the Help to Buy scheme, landlords will have to search and indeed work a lot harder to get any form of a deal.

Tax treatment of landlords will tighten as many people have been exploiting ‘reliefs’ to reduce tax burdens.

The Chancellor’s autumn statement revealed that capital gains tax ‘reliefs’ are to be tightened this year.Currently the last three years of a rented property’s capital growth is exempt from tax when the property is sold, as long as the landlord had lived in the property. But as of April this ‘relief’ will be cut to  18 months, meaning investors will have to pay extra tax depending on the increase in value of the property and the time they spent living there. There has been talk of further similar measures to be introduced in 2014, something that investors should look out for.

The market could be boosted by increasing choice of mortgage lenders.

In 2014, it has been predicted that the buy-to-let market will be swamped with numerous mortgage lenders. The end of 2013 saw a rise in the number of products available to buy-to-let investors, delivering cheaper deals and flexible finance options. It is thought that even more products will be introduced, due to the buoyant market. Great news for landlords, who will have more options to suit their needs in terms of mortgage deals.

Lack of housing has created a stagnant market.

It will come as no surprise to landlords to hear that the market is suffering from a distinct lack of housing. House builders need to build 1.5 million new homes by 2020 to help avoid a housing crisis and prevent house prices spiralling out of control. So what does that mean for investors?

Landlords who wish to expand their portfolio will have to hold out for new properties to hit the market. But hopefully this won’t be too long a wait. The figures point to a strong upturn in the future levels of home building as 44,251 permissions were granted in England on 826 sites.

Tenant demand has created a positive outlook for investors.

Perhaps the most important and certainly the most positive prediction for 2014, is the increased tenant demand for rental properties. Demand has increased for 41 per cent of landlords, as tenants are craving the ease and flexibility of renting. Increasing house prices are causing the novelty of Help to Buy to wear thin for many, which is nothing but great news for landlords!

Overall 2014 looks set to be a positive year for the buy-to-let market, but landlords shouldn’t expect an easy ride. A lot of hard work and research will be necessary, but for those willing to put in the work, they should expect a prosperous year.