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Buy-to-let investments and the future for mortgage holders 

<strong><u>Buy-to-let investments and the future for mortgage holders</u></strong> 

December 14th, 2023

As 2023 comes to a close, landlords and buy-to-let mortgage holders face a critical juncture as tax breaks on investment profits are set to be halved. 

The annual capital gains tax allowance is poised to decrease to £3,000 at the beginning of the new tax year, down from £6,000 this year and a significant reduction from the £12,200 allowance just a year ago.  

In the face of higher mortgage rates, escalating property taxes, and a downward trend in property prices, landlords are recognising the urgency to offload their properties.  

For landlords and buy-to-let mortgage holders, this article looks to discuss the broader implications of these changes and provide commentary on how landlords can approach this situation.  

Navigating Change:  

The tax relief restriction in play is known as ‘Section 24’ and was initially introduced with the motive to put landlords on a more level playing field with other homeowners, who typically don’t financially benefit from similar tax relief.

The combination of this, higher mortgage rates, punitive property taxes, and a diminishing capital gains tax allowance has created a sense of urgency among landlords to offload their properties.  

Buy-to-let Mortgage rates 2023: 
The numbers tell a tale of their own – fixed and variable rates have been falling slowly over the last couple of months standing at 6.22% and 6.78% respectively. 

It began with a sharp ascent post the government’s mini-budget in September of the preceding year, followed by a welcomed calm at the onset of 2023. However, the tranquillity was short-lived as rates embarked on another ascent throughout the summer months. 

The Bank of England base rate experienced a series of hikes from December 2021 to August 2023. Currently standing at 5.25%, it holds the reins, dictating the flow of mortgage rates. 

September and November marked a steady pause in the base rate’s tune, resulting in a nuanced response from the mortgage market.

Fixed-rate BTL mortgages gracefully retreated from their August perch at 6.79%, creating a favourable climate for potential investors. On the flip side, variable deals experienced a subtle uptick.  

Investment Opportunity? 

This situation does however present an exclusive opportunity for strategic investment. The expected influx of let properties being sold could lead to a decline in their price, thus resulting in an opportunity for savvy purchases, not only for potential homebuyers but also landlords and property investors.  

This should however be taken with a pinch of salt, as the increased tax implications, compounded by the potential decrease in the capital gains tax allowance, introduces additional complexities.  

The convergence of all these factors creates a strategic window for investment, demanding careful consideration from landlords. The discussion now centres on how landlords can adapt to the changing landscape and make informed decisions in the face of reduced tax breaks for property investments.  

How do you get started with a buy-to-let? 

Step 1 – Financial Preparedness: Now is the ideal moment to streamline your finances. Consult with an expert financial adviser to determine the optimal investment amount and expected returns. Additionally, our dedicated mortgage brokers will secure the best deal or mortgage in principle, ensuring you’re well-prepared to make offers when the perfect property surfaces. 

Step 2 – Property Acquisition: Discovering the right property and successfully having your offer accepted is a pivotal step. While the process may be expedited for rental properties, allow for a realistic timeframe, typically spanning several months. 

Step 3 – Comprehensive Insurance: Protect your investment by securing essential insurance coverage. In addition to standard buildings insurance, safeguard against unforeseen expenses such as tenant injuries, property damage, and loss of rent. 

Step 4 – Tenant Procurement: Whether through an agency or private search, finding the right tenants is crucial. Even if you personally know and select your tenants, our advice is to formalize the arrangement with a legally binding contract. Friendships have been strained over less than a flat! 

Step 5 – Active Investment Management: Buy-to-let demands ongoing attention. Regularly review your mortgage terms, conduct necessary property maintenance, and optimize your rental income for tax efficiency. Our team can assist you in future mortgage opportunities. 

2024 is just around the corner, and landlords and buy-to-let mortgage holders find themselves at an important crossroads when it comes to deciding what to do with their property portfolio. Do they sell up? Or is there a potential for lucrative investment due to the likely influx of let properties on the market? As landlords navigate this changing environment, adapting to the evolving landscape becomes paramount.  

At this point in time, mortgage rates are remaining flat, although there is uncertainty over how they will fluctuate as we enter the new year.  

Many expect a reduction in rates, and some lenders have been pre-emptive and have lowered them already however, this is still not clear whether further falls will continue in the short term.  

If your mortgage is due for a renewal, we would recommend reaching out sooner rather than later, in order to secure the best possible rate on your next deal.  

At CMME, we stand ready to provide the expert advice you need to navigate the complexities of buy-to-let investments. Contact us today for guidance on your journey towards successful property investment in the evolving market.  

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