Landlords looking forward

As 2019 gets underway, and economic conditions continue to be uncertain, it is important for buy-to-let investors to be on top of the market and its changes.

The past three years have seen the market face a host of new regulations and tax changes, and this year is set to be no different as buy-to-let landlords must brace themselves for further uncertainty. However, it’s not all bad news – some of the changes are set to have a positive impact on the market, and there are still plenty of landlords planning to increase their property portfolios over the coming 12 months.

Tax reforms have been unkind to the buy-to-let market, with landlords only able to claim 25% of their mortgage tax relief, when filing their taxes between April 2019 – 2020. This is down from 50% for the previous tax year. Not only will this increase tax bills, but it could also mean that some landlords who are currently paying basic rate tax find that they are pushed into a higher rate band.

Landlords get your mortgage right in 2019 and save thousands

Look into re-mortgaging up to six months before your initial term ends

When the initial term of a mortgage ends, lenders transfer customers onto their Standard Variable Rate (SVR). This typically has a much higher rate of interest, meaning homeowners can be stung by up to an extra £4,000 a year.

There are already over one million landlords languishing on SVRs and paying over the odds, so make sure you don’t get caught out.

Set a reminder to look into your re-mortgage options with a broker three to six months before your initial term ends. Just one month on your lender’s SVR can cost you hundreds of pounds in extra interest.

Landlords, don’t be fooled by low rates.

The Financial Conduct Authority’s report into the mortgage market found that around 34% of borrowers were unable to see that they were eligible for a cheaper deal.

On average, these consumers paid around £550 per year more over the introductory period compared to the cheaper product. But this poses a question: is the cheapest mortgage always the right mortgage?

With price comparison websites now well-established, some consumers have started to make important financial decisions based solely on price.

But while a decision between two retailers selling the same model of toaster, for example, is simple, such choices are far more difficult when it comes to the world of financial products. The cheapest insurance deals do not necessarily offer the best levels of cover, and the lowest mortgage rates may not be the best deal for a borrower’s circumstances

The mortgage market is both complex and diverse. While high street lenders may have the largest profiles, there is a raft of small and specialist lenders fighting for business.

Landlords look to fix for longer

An increasing number of landlords are choosing five-year fixed rate products, according to the latest research.

In fact, 84% of landlords opted for these mortgages in Q4 2018, up from 70% in the previous quarter. In total, 97% now choose a fixed rate.

The popularity of five-year fixed rates is likely linked to less stringent tests and the promise of greater stability in the uncertain economic climate, the firm says.

Whilst for landlords, the preference for five-year rates is both a protective measure and an opportunity to maximise borrowing, from a market perspective, it will reduce the volume of re-mortgaging over the next few years.

Elsewhere in the sector, more than half (55%) of all newly submitted buy-to-let applications are from landlords using limited companies, up from 44% in Q3 2018 – indicating a shift away from borrowing personally.