Aug

Should landlords take advantage of tax incentives, lower property prices and attractive mortgage deals?

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Higher taxes, a stamp duty surcharge, and an increasingly regulated sector had made many landlords question their commitment to buy-to-let, and many landlords were selling down.

But with Covid came a fall in prices and the stamp duty boost, which appears to have resulted in a re-think for many. Helped by the availability of cheap buy-to-let mortgages, a situation that has been gathering pace since the lockdown, and falling property values, investing in buy-to-let again has suddenly become a possible option.

With savings of up to £15,000 on investments that offer better value than before Covid, this all appears to have boosted the appeal of buy-to-let investing again, evidenced by increasing demand in almost all regions.

Mortgage broker Mortgages for Business its MD Steve Olejnik told the Sunday Times newspaper that he had found many landlords building up cash reserves even before the stamp duty holiday. These landlords were “preparing to pounce in anticipation of a fall in house prices,” he said. “Between April and May, almost a third of landlords remortgaged to release cash so they could expand their property portfolios”.

According to the Halifax building society house prices fell 0.9% between April and June, and the Centre for Economics and Business Research thinks this downward trend has further to go with a prediction house prices will fall 5 per cent this year and 10.6 per cent next year.

But Richard Ignatowicz, a broker and landlord himself told the Sunday Times that “landlord investors need to question whether it’s better to buy now and simply save on stamp duty, or buy an even cheaper property once the expected recession hits?”

So, a note of caution enters this scenario, with the end of the furlough scheme in October promising a tough time for many tenants. At that point the government will stop paying 80% of thousands of salaries, which could lead to mass redundancies across the country. According to the Office for National Statistics 649,000 fewer people were in paid employment in June than in March, so job losses are already a real threat to landlords’ incomes.

As more people lose their jobs, when the full impact of a post Covid recession hits, rent payments will come under even more pressure. Many tenants may be struggling to pay their rent, which could precipitate a fall in rent levels over the next year or two, and good tenants may become harder to come by.

However, the risk is somewhat offset by the competitive mortgage situation now developing, with some deals on offer as low as 1.24 per cent and 20% deposits back on the cards.

Despite the temptation to invest now, some experts are counselling caution. They’re advising landlords to do thorough research in the local market, to establish real tenant demand, and for example, to take account of changing tenant preferences, such as the need for outside space and separate office space. Landlords may also consider buying through a limited company for tax reasons.

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