Buy To Let Investors Brace Yourselves: Tax Reforms, Interest Rates And Other Hiccups
Property investors have weathered the storms brought on by the 3% stamp duty introduced a few years ago and the number of investors has crept up to over 2.5 million investors. But the stamp duty and slew of other taxes aren’t the only hoops property investors need to jump through in order to build up their property investment portfolios to match those of the Candy and Reuben brothers.
A Petering Out Housing Market
Those who already have a few investment properties on their balance sheet have to suppress a shudder as the housing market takes a dip. Recent figures reveal that the market has dropped 1.9% in the second quarter and 0.7% in the third quarter. These figures form part of a five-quarter streak and investors need to do all they can to hold onto their properties as offloading could result in losses. For those entering the market for the first time, however, a property in London could be added to the balance sheet at a far lower cost than before.
Bank Of England Drops Interest Rate Shocker
Interest rates have climbed substantially from the end of 2017 until current, with the U.K. interest rate already hiking up to 0.75%. For property investors who have buy to let mortgages, the interest rate hikes spell a reduced cash flow as the installments are adjusted accordingly. Interestingly enough, rental prices are dropping in London, making it difficult for investors to make up the shortfall. This discourages further property expansions and places a damper in the buy to let arena. While the Bank of England voted to keep the rate steady in the November 2018 run, it’s still a long way off from the favourable rates of mid-2016.
Tightened Credit Lending Criteria Affects Mortgages
While the default rates of unsecured lending products are the reason why banks are tightening their lending criteria, this tightening of the belt has inevitably spilled over into the mortgage demand. A massive 29.3% drop in the demand for mortgages in the first quarter of 2018 indicated the lack of willingness by consumers to jump through the hoops in order to qualify for finance. This had its effect on the property market and the slump is set to continue unless market conditions become a little more favorable.
One of the ways lenders are hoping to make some change in the industry includes providing potential clients with an array of mortgage products. With a direct focus on the buy to let market, select intermediaries will provide those on the market to expand their investment portfolios with unique products. While these may not able to circumvent the changes in terms of taxes, levies, and rates. The products do, however, take into consideration the unique factors that landlords face. These mortgages will also take into account the different property types and the challenges they may present.
Property owners hoping to build up their investment portfolios in 2018/2019 face a unique set of challenges. A strategic goal in terms of property acquisitions and sales at the right time will ensure a good wealth strategy with the long term in mind.