Should you hold onto your buy-to-let?
With interest rates on the rise and mortgages becoming more expensive, many landlords will be asking whether their property investments will still deliver.
With interest rates on the rise and mortgages becoming more expensive, many landlords will be asking whether their property investments will still deliver.
At times like these, the standard advice is that property should always be viewed as a long-term investment. Housing is still in short supply, and with patience, market fluctuations can be safely navigated. But these recent changes have come swiftly and after a lengthy period of stability in the cost of borrowing. For many landlords, this situation is new, unexpected and worrying.
It would be wrong to dismiss the unease. Some commentators have even made predictions of a massive sell-off, but there’s a need for calm and consideration. Knee-jerk reactions are often unhelpful. In challenging times, the wise landlord keeps focused on the ultimate goal and remembers two key factors:
1) Property price growth is strong over time
2) High rental yields are still achievable.
While good news, these factors don’t mean that landlords can sit back, relax and wait for the economic outlook to improve. The passive landlord will lose out. It’s essential, now more than ever before, that landlords manage the challenges of owning a buy-to-let well. If they do, they should still be able to thrive.
With 20% of the population renting now, it’s no longer seen as a short-term step. The UK has over thirteen million renters, occupying 4.4 million dwellings. Demand is strong and rising. Rents are likely to continue increasing and while they do, the capital generating that rental income could also be appreciating. Over time, property values continue to reflect high demand.
Many landlords have unrealised value in their properties. If they re-mortgage, they can withdraw the extra cash tax-free. As they’re not selling the property, capital gains tax won’t apply. The cash raised could be used to refurbish the property to maximise the rent or to grow the portfolio by investing in another property.
It might be the right time for a landlord with a few properties to consider a company structure which could boost tax efficiency. Landlords need to be smart about tax and to understand and claim all costs allowable. And because they should be thinking long-term – 15 years plus – they shouldn’t forget Inheritance Tax in their planning.
Landlords may be facing new challenges but there are ways to mitigate the risks. As the cost of living rises, insurance can offer protection against loss of rental income, damage and legal costs.
An accountant could reduce the landlord’s tax liability. A letting agent’s prompt efficiency could minimise void periods or maintenance costs. Many buy-to-let owners attempt to manage every aspect of being a landlord themselves, but professional support and tailored products can be invaluable.
No doubt the landlord reading current press headlines will feel unsettled, and while everything points to a healthy long-term future for the buy-to-let landlord, it’s still unwise to become emotionally attached to the investment. Buy-to-let owners should keep the old maxim in mind: actions should be ruled by the head and not the heart.