Buy to Let update;
The chancellor’s aim was to take some heat out of the property market by introducing new tax measures on the buy to let sector.
This strategy already seems to be working with a lull in the market now after the initial rush by investors to complete their purchases at the end of March before increased stamp duty.
This is a lull in transactional volume, not a drop in prices.
So to remind ourselves of the key changes;
- Stamp duty Surcharge of 3% on any investment or second property
- Plans to cut tax relief on mortgage interest
- Bank of England consulting on new affordability checks despite the fact interest rates are at all time lows.
- Interest cover ratios (the means of working out how much an investor can borrow) are calculated at a stressed interest rate. This is so that any shock of interest rate rises can be absorbed. The recommended rate is 5.5%+ and there may be a push to increase the interest cover ratio from a minimum of 125% to 145%.
So what does all this mean to the investor?
- It means that typically higher deposits will need to be paid (as loan sizes are constrained).
- It means that investors are more likely to generate a positive cash flow in areas where values are lower and yields higher.
- It means a shift from London and the South East to Midlands and North of England
- It means for many that they will not be investing near their homes, but needing to invest further away.
It is therefore imperative that the right advice is sought and the right managing agent is selected.
Importantly for the East Midlands and the local markets we cover in Leicestershire, Northamptonshire, Lincolnshire and Rutland; it will mean new investors and investment into the region.
Investors from London and the South East are increasingly focusing on more affordable areas to ensure their cash flow on property investment remains positive. Any properties that are well located, in decent condition and priced at £150,000 or less are likely to see strong investor demand.
Please do speak to any of our team to discuss buy to let opportunities further and hear what we are recommending in the local markets.