Jane McGowan takes a look at the buy-to-let market...
Despite the recent slowdown in the housing market, rise in interest rates and changing tax rules, property is still seen as a great investment. Unlike our European neighbours who are happy to be lifelong renters, possibly never owning a property of their own, we Brits like to have our money invested in something solid and what could be better than good old bricks and mortar.
According to figures published by the Resolution Foundation think tank last August, one in 10 British adults now owns a second home, although only 3.4% of the 5.2m multi-property owners have decided to become a landlord with the remaining choosing to keep the property as a holiday home or for other means.
Do I have to pay stamp duty?
Yes!
- 3% tax on the first £125,000
- 5% on the portion up to £250,000
- 8% on the portion up to £925,000
- 13% on the portion up to £1.5m
- 15% on everything over that
Television shows such as Homes Under the Hammer and Property Ladder, introduced many people to the buy-to-let market, often presenting it as a way of making fast cash by adding a quick coat of magnolia and some wooden flooring. But can it really be that simple? Andrew Hodgson, lettings director from Keys Residential in Kingston says that in the current market, especially in Greater London, any would-be landlords should be prepared to wait up to 10 years for a return on their investment.
Fiona Scott from Warlingham in Surrey began looking for a buy-to-let property in 2012 after taking voluntary redundancy. She invested in a studio flat in Southwark and, six years later is now enjoying a healthy monthly rental return.
“At the time there was a lot of building work and stuff with the sewers going on nearby,” says Scott. “So we got the flat for a good price and factored in the works/inconvenience into our original rental price. Now the area is really sought after and we have been able to raise our rent threshold. We saw it as an investment for our future – it’s basically our pension.”
Do I have to pay capital gains tax?
- Yes, if you sell the property for more than you paid for it after deducting costs sales costs. By making a profit, you are essentially ‘gaining capital’, and so yes, the tax applies.
The Scotts opted to use a letting company, as Fiona says, “we didn’t want to make any mistakes and wanted someone to take the pressure of finding tenants and checking their credentials out.”
And as Hodgson points out, there is a lot to consider. “There is legislation about immigration, money laundering, tenants’ rights, even down to types of smoke alarms,” he explains. “Things which people wouldn’t expect to deal with and wouldn’t know how to. Would-be landlords often think they can just draw up an agreement with a tenant, but this is not the case.”
When looking for an agent, Hodgson advises people to check they are a member of ARLA (Association of Residential Letting Agents) a professional body that aims to protect both landlords and tenants. “It’s best to get things right at the beginning because if you don’t there can be big problems when you want to take back your property and you may need your tenants out,” adds Hodgson. For more information, visit: arla.co.uk
Buy-to-Let Mortgage – what you need to know:
You may struggle to get a buy-to-let mortgage if you don’t already own your own home, whether outright or with an outstanding mortgage. Fees can also be much higher as are interest rates. You also need to have:
- A good credit record
- Earnings of £25,000+ a year
The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20-40%)
Most BTL mortgages are interest-only. This means you don’t pay anything each month, but at the end of the mortgage term you repay the capital in full
Most BTL mortgage lending is not regulated by the Financial Conduct Authority (FCA). There are exceptions, for example, if you wish to let the property to a close family member (e.g. spouse, civil partner, child, grandparent, parent or sibling). These are often referred to as a consumer buy to let mortgages and are assessed according to the same strict affordability rules as a residential mortgage.
