As terms loosen up for first-time buyers, lenders tighten regs for property investors
With the approaching changes to the way income on rental properties is assessed for tax purposes, the FT Adviser is flagging up changes in the way some mortgage lenders assess lending as a sign that terms and conditions may change across the financial lending industry.
The Mortgage Works (a specialist arm of Nationwide) has recently raised the rental cover rate needed to secure a mortgage from 125% to 145%, and it will stop lending over 75% loan to value on BtL mortgage products. Other lenders are expected to follow suit.
So if you have decided to invest in Buy-to-Let – or expand your property portfolio – and you will need a mortgage to do so, now is the time to start planning.
If you don’t have the budget to pay commission to a specialist buy-to-let mortgage adviser, then sites like moneysupermarket.com and uSwitch enable you to compare the best deals currently on the market.
Target smaller properties
Although the new Stamp Duty rates apply to all properties other than your main residence now, smaller properties mean a smaller rate, so spreading your investment (and your risk) across several properties, rather than one large investment, can reduce your overall Stamp Duty exposure.
Factor in the Stamp Duty across the lifetime of your investment, and it soon drops into perspective – especially when you realise that you can claim the Duty against any Capital Gains if you decide to sell – reducing your tax exposure.
With the recently announced changes to mortgage interest relief, some small investors are getting together to form limited companies. Private companies are not subject to the new taxes rates in the way individual investors are.
So there are still significant advantages to investing in property and/or becoming a private landlord – especially when you shop around for growth areas outside of London [hint: look at those regions about to be affected positively by the HS2 rail link].
If you’d like more free advice on investing in property in 2016, why not check out our article on Building a Property Portfolio: 5 Things Letting Agents Know that You Don’t?
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Disclaimer: The Better Letter is not a professional mortgage broker or financial adviser. Please seek relevant professional advice when securing a mortgage.