Buy-to-let: booming, or set to bust?
Tax changes that will reduce margins do not appear to be deterring retiree investors
Depending on who you listen to, the market for buying houses to rent out is either withering or booming.
The Daily Telegraph reports that 1,000 buy-to-let mortgages are now being offered by banks and building societies, more than at any time since April 2008. In line with the wider market at a time of ultra-low interest rates, researcher Moneyfacts also found that the average buy-to-let variable mortgage rate had "fallen from 6.66 per cent to 3.6 per cent in the seven-year period".
The Telegraph attributes the rise to an attempt by lenders to "profit from older savers cashing in their pensions to buy property". Since April retirees over the age of 55 have been able to access their pension and even fully cash in their fund, which many have predicted will prompt a surge in property investment from a generation sceptical of organised pensions and drawn to a tangible 'bricks and mortar' investment.
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But while around £1bn has been taken from pension funds in cash since the new rules came into effect, according to Association of British Insurers figures, there is no reliable evidence to suggest this has been reinvested in property. Financial advisers warn against taking using a pension in this way due to layers of tax that would be due on the cash withdrawn and the property purchase itself – and banks have been tightening criteria on buy-to-let mortgages, which could present problems for most people as the average size of an encashed pot is only £15,000.
In addition, the Financial Times warns the buy-to-let "heyday" which has seen 80 per cent of new homes built since the turn of the century acquired by private landlords - and which critics say has disenfranchised younger buyers – is "coming to an end", thanks to the removal of yield-enhancing tax reliefs and an impending interest rate rise that could spark a wave of repossessions.
Tax changes announced in last month's Budget mean tax relief for landlords will be phased out by 2020, meaning in particular they cannot offset the costs of mortgage interest – 100 per cent of the monthly mortgage cost if the loan is 'interest-only' – from their tax bill. The Telegraph says some landlords "will see all of their returns wiped out".
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