In recent years, a number of tax disincentives have been introduced to make the life of landlords much harder, and potentially much less profitable.
The phasing out of mortgage interest tax relief, which reached 0% from April last year, was one measure brought in to cool the buy-to-let market and, so the theory went, make it easier for first-time buyers.
Equally, in April 2016, there was the introduction of the additional 3% stamp duty surcharge on buy-to-let and second homes, while there have also been changes to the Wear and Tear Allowance – another area where landlords could previously claw some money back.
This has all added to the expense of being a landlord, which also includes mortgage costs, management fees, costs for maintenance, energy, fire safety and electrical checks, insurance and in some parts of the country licensing fees.
As a result, it’s more important than ever that landlords are on the best mortgage possible.
Analysis – do East Sussex landlords have the best mortgage rates?
Most landlords have a buy-to-let mortgage, and recent analysis by Moneyfacts found that BTL mortgage rates are currently at their highest levels since the coronavirus crisis began, and could increase further still.
Since last summer, rates have been creeping up and are now at their highest level since November 2019. The average two-year fix has jumped from 2.51% in May 2020 to 2.92% presently, while the typical five-year fix has increased from 2.94% to 3.29% over the same time period.
As such, Moneyfacts says now could be a good time for investors to reassess their options. The positive news is that there are lots of landlord mortgages on offer, with the number currently at its highest level since March 2020. That said, product numbers are still not yet back to pre-crisis levels.
The research found that there are currently 1,976 buy-to-let mortgages on offer, up from lows of 1,455 in May 2020, but still some way down on the 2,897 products available in March last year.
The number of 80% loan to value (LTV) mortgages has grown five-fold since May 2020, when just 19 products were on the market. From December 2020 to January 2021 alone, a further 26 deals were added at this level, taking the total to 100.
Eleanor Williams, spokeswoman at Moneyfacts, said the above is especially positive for landlords with lower levels of deposit or equity, as growth has extended to the slightly higher-risk 80% LTV bracket.
However, she added a word of caution, noting that the data showed the market had remained volatile since the start of the New Year.
“Lenders have been adjusting their offerings and consequently availability continues to fluctuate,” she said.
How to make sure you’re saving money during difficult times
The pandemic has undoubtedly and unsurprisingly caused financial hardship and uncertainty across all walks of life, and this includes landlords and tenants.
To make matters worse, some landlords with tenants in rent arrears are going to find it much more difficult to chase tenants from May 2021, when the government’s new Debt Respite Scheme comes into play, offering tenants breathing space if they have debts or are undergoing a mental health crisis.
Evictions are currently also off the table in all but the most serious cases, and this is likely to remain the case for some time, while talk has been growing again about the possible scrapping of section 21 with a junior government minister saying that the controversial Renters’ Reform Bill would be introduced ‘very soon’.
Furthermore, the government is aiming to introduce a new law which would give tenants the assumed right to keep pets in their rental properties, which could cause financial issues for landlords in terms of damage and deposit disputes.
There is also increasing pressure for landlords to green their properties to ensure they are adequately energy-efficient, but the scheme designed to help landlords with this – the Green Homes Grant – has been heavily criticised.
Landlords have felt, once again, that they have been both targeted by the government and left behind, with many landlords also losing their main jobs or struggling to generate their usual levels of income because of the pandemic. As a result, some are struggling to pay their mortgages with tenants unable – and in a minority of cases unwilling – to pay their rent.
There are, however, ways landlords can save money, get the most out of their investment and safeguard their future. Like everyone else, landlords have been able to take advantage of the stamp duty holiday, which will have made expanding a portfolio since July much easier thanks to considerable tax savings on a purchase.
Switching mortgages could also help landlords to save money, with there currently being quite a few options for landlords to consider. As is recommended above, landlords should speak to their agent or an experienced mortgage professional before making any impulsive decisions.
Incorporation – which sees landlords transfer their property portfolios into a limited company structure – has also become increasingly popular since the phasing out of mortgage interest tax relief began in April 2017, as it offers landlords higher levels of tax relief and personal tax savings.
Research last year suggested there had been a 55% spike in 2020 alone in investors enquiring about forming a limited company, with a significant majority of active buy-to-let investors either currently operating as companies, planning to switch, or at least interested in understanding its possible advantages.
What’s more, research by property development company SevenCapital suggested that just 10% of BTL investors actively buying now are doing so as individuals.
Incorporation has pros and cons, so it’s best to get in touch with a tax expert to ensure that it’s the right move for you and your portfolio.
When it comes to rent arrears, meanwhile, landlords should work closely with their agents and tenants to come to an arrangement to allow them to recoup the money they’re owed over time. Most tenants have continued to pay their rent on time throughout the pandemic, but for some financial difficulties – through no fault of their own – have made this difficult. An understanding approach could help to make all the difference.
If you are looking for a free mortgage review service, to work out which mortgage is right for you, here at Oakfield Estate Agents we can provide that.
There are also considerable cost savings to be had, over time, in working closely with an experienced, knowledgeable managing agent, who can help you to get the most from your rental properties, turning over tenants quickly when required to avoid void periods, and keeping on top of all the latest legislation and regulations.
Good property management is more important than ever, with people spending so much more time at home – and in many cases working there on a full-time basis. Maintenance issues and requests are likely to be more commonplace, and tenants may have more questions about their rent or their rental home.
You can find out all about what we offer in Eastbourne, Bexhill and Hastings by clicking here.
Here at Oakfield Estate Agents, we will do all we can to help you let your home successfully, using our years of knowledge and experience.
For further information on how to manage the lettings process, please get in touch with us today. You can request a free instant online valuation to see how much your East Sussex property could be generating in rent each month.