According to recent research from the property website Rightmove, buy to let landlords would appear to be befitting from the difficulty in securing a mortgage, especially amongst first time buyers and families. Over the past 6 months the average rental yields of British property investors rose by around 6% and show signs of continuing to rise over the forthcoming months.
Even taking into account LSL Property Services separate research which has found a slightly lower growth rate on residential property investment at 4.5%, almost half of tenants surveyed for Rightmove are worried about rental increases over the coming months; illustrating that investment in rental property in the current climate is still a sound prospect. The average monthly rent now stands at around £700, and only the very best prospective tenants with immaculate references are being given access to the limited houses available on the market.
In addition, the prospect for increased British rental rates looks strong due to the growing interest shown by overseas property investors, especially those from China and Russia. Falling house prices and rising rents, which are occurring in the current market, are a magnet to prospective home and foreign investors.
Approximately 32,300 loans worth a combined total of £3.7bn were provided for buy-to-let borrowers, according to figures from the Council of Mortgage Lenders (CML), increasing the buy to let share of the mortgage market and representing just under 13% of the total value of outstanding mortgages.
Potential landlords however, will still require larger deposits than they did in previous property boom times to invest in property, with the average maximum loan-to-value available from lenders standing at 75%, compared to 85% at the peak of its popularity.
The year-on-year rise in buy-to-let lending reflects the state of the overall property market. Demand for rental property is as strong as ever
David Whittaker, MD – Mortgages For Business
More landlords are buying up three- to four-bedroom homes, which are popular with the growing number of families that are renting. This is a whole new market for buy-to-let, and is particularly short on supply.
BDI Home Finders
The sting in the tail is that while rental revenue increases and mortgage availability is improving, accountants are warning that thousands of buy-to-let landlords are in for a huge financial tax shock. Many buy to let landlords will find themselves having to pay two years’ tax liabilities over the next six months. Whenever the HMRC is concerned it’s always baffling and complex but ignorance is no excuse when Her Majesty’s Revenue and Customs come calling.
A partner of UHY Hacker Young, Geoff Davies, explains: “Many buy-to-let landlords came into profit on their investments in the tax year that ended on April 5, 2011, after the interest rates they were paying were slashed during the recession.
“This means that landlords could have to pay as much as 24 months’ tax in just a six month period. Tax for the 2010/11 tax year was due by January 31, 2012, along with half of the tax for the current tax year, while the remaining half of the tax for the 2011/12 tax year will fall due on July 31, 2012.”
Ridiculous though this may look, the uncomfortable truth is that HMRC wants to have its share of the buy-to-let boom, regardless of the inconvenience to buy to let landlords.