Buy to let – it’s still a strong investment
With 2018 well underway it’s time to reappraise personal finances and investments – and it’s the perfect time to reconsider buy to let, writes Graham Norwood.
This investment has fallen out of favour in the past two years thanks to a raft of taxes and regulations introduced by the government.
There’s no denying that it’s a more challenging investment than before but the returns remain very attractive and shrewd operators plan carefully to maximise income.
In addition to choosing the right type and location for a buy to let property (both of which will be revealed by letting agents in the areas where you wish to invest) you can plan ahead to avoid pitfalls with three particular issues coming up later in 2018.
Getting the best buy to let mortgage: Act quickly and you’ll have an outstanding choice according to moneyfacts.co.uk, an independent mortgage market monitor. Early 2018 is seeing highly competitive rates but only for those acting rapidly.
By spring, two sources of buy to let funding will end, pushing up costs for those who delay.
The first is the Funding for Lending Scheme, launched in 2012 to encourage banks to lend; the second is the Term Funding Scheme, which lends to banks at the base rate. If you commit soon you will have the widest choice and the lowest rates for the near future.
Optimising your tax status: Mortgage interest tax relief for landlords is being tapered. Currently, landlords can offset 75 percent of mortgage interest against tax but this will drop to 50 percent from April 2018 and reduce further until 2020 when it will be replaced by a tax credit worth 20 percent of mortgage interest.
One way of minimising the impact could be to set up a company to hold your buy to let investment property.
There may be downsides to this depending on your tax circumstances so always consult a financial adviser – but there has been a surge in the number of existing landlords who have incorporated in recent years to optimise their tax position.
New energy efficiency requirements: Properties where rental tenancies start after April 1 this year must have a minimum Energy Performance Certificate rating of E: most homes are already up to that standard, but if a buy to let is not it must be improved.
Canny new investors will ensure their buy to let purchase is already E or higher – or will ensure the purchase price of a property falling below that level is suitably lowered to cover the cost of improvement.
It’s worth remembering that over the next five years still higher energy rating standards are being imposed on private rental properties – so think ahead and buy as energy-efficient a home as possible.
“There’s no denying that it’s a more challenging investment than before but the returns remain very attractive”