While last quarter's property tax changes may still loom over the heads of those in, or contemplating getting into, the buy-to-let market; 2016 could actually be the year of the landlord.
Now is a great time for your client to expand their property portfolio. Given the recent changes to the property professional landscape, that statement could seem peculiar to some, but there is actually some pretty sound reasoning behind it.During a recent roundtable interview (July, 2016) between our very own Jo Breeden, leading representatives from lenders in the industry and chartered surveyors, the topic of buy-to-let mortgages was covered extensively. They discussed the generational divide between homeowners and this country’s shift to a more European rental-focussed housing trend. As life becomes more diverse and opportunities more varied, increasing numbers of young people are looking for flexibility in their lifestyles and therefore housing choices – something a mortgage can’t provide.
So, there is obviously a demand for landlords, but why should they be acting now?
January 2017 will be a pivotal point in the buy-to-let market. Affordability calculations are going to become more stringent under the planned changes from the Prudent Regulation Authority
. Their reasoning behind the decision was to put a stunt on the market that has more than tripled in the past decade in order to reduce demand from investors; thus increasing the properties available for first-time buyers.
It shouldn’t come as a surprise, as high street lenders can be seen increasing their affordability testing since late 2015. Barclays was the first high street lender to introduce a 135% stress test amid fears that prospective property magnates wouldn’t be able to foot the bill.
This leads to one simple conclusion. Landlords should be releasing equity trapped in their property now and re-investing it before it becomes more difficult. Included in our product panel is a product that allows up to 75% LTV on properties under £15m.
Equity release now is particularly prudent for those living in London. Additional value gained over the past six years of growth is prime for re-investment; allowing landlords to invest in property outside the centre and truly capitalise on what they’ve already got! Stamp Duty changes have made investing into London a waste, if not nearly impossible, so landlords should be looking further north in order to maximise their yield potential.
Though refinancing doesn’t have to lead to more properties. Equity released from the properties currently in your clients’ portfolio could be used to finance their future development.
And while we’re maximising profit, let’s talk about Limited Companies!
Just between us, everyone leasing property in today’s market should be doing so under a Limited Company.
There are a lot of pro’s to owning multiple properties through a Limited Company, but the main draw for most landlords are the tax benefits. Rental profits from a Limited Company are taxed at 20% if landlords are earning under £300,000; compared to rates of up to 45% on a personal tax rate, without including charges incurred by capital gains. The switch from personal to a Limited Company means the landlord could also receive incorporation relief to further offset the corporation tax payable.
Make 2016 your client’s year!
If your client is looking to build a property portfolio, expand their existing investment property portfolio, or even capital raise to improve existing properties, then 2016 is their year! Our product panel is diverse and could help them access the funds they need to achieve their buy-to-let dreams.
For more information regarding April's property tax changes, download our essential free eGuide below.