June 8th, 2017
Owning a home to live in is one thing but buying bricks and mortar can represent far more than just providing a roof over your head. For contractors in particular, it can be a wise investment route.
But with recent tax changes affecting landlords, is buy-to-let still a good choice for contractors and freelancers?
Investing in buy-to-let
Property has always been a popular investment option. Historically, those with funds and who are interested in property investing, have built up a portfolio of homes to rent, to produce an income as well as capital growth.
In 2015, private rental hit a 30 year high, with homeownership dropping to levels not seen since 1985 and some 22% of households renting from private landlords. In January 2016, according to Savills the total value of housing stock in the private rented sector hit £1.29tn – up 55% in five years.
Tax changes and buy-to-let
The popularity of investing in the buy-to-let sector has carried on – but not necessarily unabated. The increase in Stamp Duty on buy-to-let and second homes introduced in April 2016 has had an effect.
While this change isn’t such good news for contractors, one other tax change has not hit home. From April, landlords began to lose the right to claim back their mortgage interest costs at the rate they pay income tax. Instead, over the next three years, this is being reduced and eventually replaced with a 20% tax credit.
And here is the significance of your status as a contractor. If you operate your business through a company you are exempt from this change, because you will pay corporation tax on your profits. And with corporation tax set to drop to 17% by 2020, buy-to-let becomes even more tax efficient for a contractor operating through a limited company.
So while buy-to-let for the general population may have lost some of its appeal, for a contractor it’s still a worthwhile investment.
Indeed, it could be argued that there has never been a better time for a contractor to invest in buy-to-let.
If you are looking for a mortgage, there are some 313 limited company buy-to-let products available. In 2016 there were just 133, and five years ago there were just 30. So now, as a contractor looking at buy-to-let, you have a greater breadth and depth of choice.
At the same time, rents are predicted to rise. According to the Royal Institute of Chartered Surveyors, over the next five years rents will rise by 25% compared to house prices, which are predicted to rise by 20%, so rental yields will increase.
So does buy-to-let still seem a good option for a contractor? With the rise in rents outstripping the increase in property prices, the ready choice of BTL mortgage products and – if you work through a limited company – its tax efficiency, then buy-to-let is as good an investment, if not better, than it’s ever been.
For more information about contractor mortgages and buy-to-let, please get in touch with the team at Contractors Mortgages Made Easy.
Media Contact: Sarah Middleton, Public Relations Manager
Tel: 01489 555 080