Recent figures show that the UK buy-to-let market is flourishing, despite a raft of problematic tax and regulatory changes introduced over the past few years.

Between poor forecasts and new rules and regulations that appeared to create hurdles for buy-to-let landlords, the recent shifts have seen some smaller investors opting to leave the market.

Increases to taxable income and enhanced stamp duty particularly hit landlords’ pockets, while tighter regulations for portfolio landlords, new health and safety rules, and costly licensing requirements have also come into force, making the market less attractive for some.

For the tax year 2018-2019, buy-to-let landlords can offset just 50% of their mortgage interest payments against their rental income. As landlords could previously deduct mortgage interest from letting income with generous provisions for wear and tear, this marks another significant shift in the buy-to-let landscape.

But despite these changes, plus stricter lending criteria and the phasing out of tax relief on mortgage interest payments to April 2020, the buy-to-let market is standing tall and on the up.

A Healthy Market

The latest figures published by UK Finance suggest more new landlords are buying property and existing landlords are continuing to expand their portfolios. The number of buy-to-let mortgages has risen every month for seven months between February and August – with just one anomaly of a small dip in June.

August saw 5900 borrowers purchase a rental property with a buy-to-let mortgage, up almost a quarter (23%) on the 4800 borrowers in February, according to the statistics from UK Finance, with the value of new buy-to-let lending also increasing by around £2bn between February and August.

The same data shows that buy-to-let remortgaging has remained steady over the seven-month period, with a similar dip in June, but otherwise fluctuating between 12,500 and just over 15,000 remortgages a month. Overall, the figures show that the market has significantly picked up pace since 2018, with buy-to-let mortgages up by 5.5% year on year after several years of decline following the new tax rules.

Choices, Choices…

Things look particularly promising for first-time landlords, as research from Moneyfacts.co.uk shows there are currently 1474 buy-to-let mortgages available. This reflects how lenders are working harder than ever to expand their range and maximise appeal to both prospective and current investors.

Thanks to downward pressure on rates in the money markets, there are currently some excellent rates to be accessed on both two-year and five-year fixed-rate mortgages (depending on individual circumstance and level of deposit put down). A wide range of expat buy-to-let mortgage products are also available with reduced rates and fees from a wide variety of lenders.

Despite Brexit fears meaning some investors have adopted a ‘wait and see’ approach, savvy buyers are recognising that lenders are offering historically low and extremely competitive interest rates within this context. The Bank of England has also defied Brexit fears to keep interest rates at the same level.

With the Brexit deadline recently extended yet again, and the potential that rates could change in the near future, it’s well worth landlords reassessing their position to see if there are better deals available.

A Limited Outlook

One trend that is happening in response to the change in mortgage interest rate relief is an increase in purchasing buy-to-let properties via limited companies. This option is particularly popular because a limited company status means landlords can offset mortgage interest against profits, which are subject to cheaper corporation tax instead of income tax.

However, it is important for those considering this option to take account of the fact that limited company mortgages do attract higher interest rates, and sometimes additional lenders fees.

The Right Place

The buy to let sector has proven its resilience during turbulent times. Now it is up to investors to choose the right property and adopt a long-term view to achieve good returns and potentially greater yields in comparison to a range of other investments.

Location is key, according to the Kent Reliance for Intermediaries’ Buy to let Britain report, with buy-to-let performing best across key cities in the Northern Powerhouse, where healthy returns are predicted in the long term. For those whose interests remain firmly focused on the bright lights of the capital, don’t let the negative press put you off. Even though it is performing poorly in comparison to other UK regions, London yields are currently at their highest level since 2015.

As interest rates have dropped, borrowing now is cheaper than ever and demand for private rentals remains strong thanks to the rise and rise of Generation Rent.

A Lucrative Option

Whether an investor is looking to boost their property portfolio, begin a career in real estate, or get on the property ladder, buy-to-let offers the potential for a regular rental income, as well as capital appreciation. It remains one of the most lucrative types of property investment on the market.

As with any mortgage, it is important to seek advice from experienced specialists, who will offer expert, informed guidance on all aspects of the mortgage process.

Our mortgage advisors can help to determine whether buy-to-let is right for you and which mortgages best suit your requirements, sourcing the most effective market deals and competitive rates. With our expertise, you can rest assured that your buy-to-let mortgage process will be a smooth one and that we will consider all the key factors to identify the best solution for your circumstances.

NB: advice on most buy to let mortgages is not regulated by the Financial Conduct Authority.