Preparing for Future Economic Changes in the Buy-to-Let Sector

The Government’s clampdown on the buy-to-let sector will continue into next year, alongside economic changes that will have an effect on the property market. How should you prepare for any financial difficulties you may face?

Just next month, the country will vote in its first European referendum since 1975. It is believed that the EU vote will cause house prices and sales to drop, due to uncertainty in

the market. However, property professionals have called for a Brexit in a recent poll.

So should you continue to invest in property at this volatile time?

Nova Financial’s Managing Director, Paul Mahoney, explains: “Our advice to our clients is that property is a long-term investment and therefore isn’t about timing the market, but rather time in the market.

“All too often we meet with people in their 60s who have always had a reason not to invest, whether it’s a property bubble, tax changes, Brexit, Easter or Christmas, and unfortunately, these tend to be the people with little to no investable asset base, because they’ve always had a reason to wait. Those that invest in quality properties in areas with strong fundamentals ride out the short-term blips and achieve strong growth over the mid to long-term.”

He adds: “My point is that regardless of the EU referendum outcome, property will remain a strong investment over the long-term and it should not stop people from positioning themselves to take advantage of that fact.”

Additionally, many landlords are considering forming limited companies to avoid the gradual reduction in mortgage interest tax relief, from April 2017.

The latest data from mortgage lender Foundation Home Loans claims that landlords will favour limited company mortgages in the future, as this type of property business will be exempt from the cut in how much tax relief landlords can claim against mortgage interest payments.

Mahoney comments: “We have been advising on and forming limited companies for many of our clients, given the recent tax changes. When running the numbers and accounting for a slightly higher interest rate payable for limited company buy-to-let mortgages, we find that it is certainly worth considering for anyone on the highest tax rate with mortgage loan-to-values above 50%. This affects anyone earning over £43,000 per annum currently and £45,000 as of next year. Those that are borderline on the threshold need also be careful, as if they are landlords receiving rental income, the recent changes may push them above the bracket. It is very important to seek tax advice on this matter and if they haven’t already, all landlords and prospective landlords should be getting personal advice.”

If you are thinking of investing in the buy-to-let sector, or are considering changing your business model, remember to seek professional advice from a leading expert.