Following a recent raft of changes to tax policy that affects buy to let landlords, property investment isn’t as immediately enticing as it used to be. In fact, the changes could beg the question of whether such investment is worth pursuing at all; however, there remain many ways in which you could save money and so preserve many of property investment’s traditional attractions.
How have tax changes affected the buy to let scene?
Once you have obtained a property, letting it out is one of the most commonly advised ways of making money from it. However, this method of amassing revenue has recently started looking less promising. Law changes hitting landlords’ money-making potential include the increase on stamp duty payable when a buy to let property is purchased.
Another recently-enacted change outlined by This is MONEY is the axing of buy to let mortgage interest relief; a 20% tax credit has replaced it. As for the stamp duty on purchases of buy to let properties, it has been 3% higher since April 2016.
Property investment is still attractive
Do these changes mean that you should ultimately completely abandon the idea of investing in property? Surprisingly or not, the answer could easily be “no”. There remain good reasons to believe that, if you invest in property now, even with the new tax restrictions in place, you could reap impressive financial returns later down the line.
Those reasons include the likelihood of rising demand from tenants, plus rents that look set to increase with inflation. Furthermore, mortgage rates have been seriously cut – though you need to remember that, should you take out a mortgage now, the rate could later rise and so you must take account of this with your investing endeavours.
Below, we launch into some tips for trimming costs and, in the process, helping yourself to overcome financial hurdles that could otherwise derail your investment efforts.
How to boost your chances of getting a good mortgage
To get started with property investment, you might first require a mortgage. Seeking a buy to let mortgage? Then, generally speaking, the larger your deposit, stronger your rent to mortgage payments cover and healthier your earnings elsewhere, the likelier you are to land a good mortgage.
What rent are you likely to get from the first property you invest in? Typically, buy to let mortgage lenders will want rent covering 125% of the repayments – while it has become more common for a lender to demand a deposit of 25% if not more. This is, at least, the case if you are seeking a rate much higher than what you would get with a residential mortgage deal.
Even if you do get offered a great rate, that buy to let mortgage will have hefty arrangement fees attached. Consider this, along with maintenance costs and the possibility of the property occasionally sitting empty for one or two months in-between tenancies, to assess how much you might end up having to pay – and, therefore, how necessary it would be for you to cut costs.
Where will you be investing?
This could play a big part in the likelihood of your property investment paying off. Think carefully about what kind of tenant you would like to attract. If, for example, you want to target families, it could be counterproductive to spend money sprucing up the property with lots of eye-catching furniture. This is because that family will already have lots of their own possessions and so want a property more akin to a blank canvas.
If, on the other hand, it’s students that you wish to attract attention from, you should invest in property in places with a strong university presence. One such place is Sheffield, which is home to the University of Sheffield and Sheffield Hallam University. Invest in buy to let Sheffield property, with property investment consultancy firm Flambard Williams’ help, and many students could be very grateful.
Little-and-often is a good saving strategy
Maybe you have a solid idea of the specific amount of money you would like to save over the long term. This could be the case if, for example, you want a fresh deposit to put down on another property. The Money Advice Service provides some tips for what to do in this scenario.
Those tips include figuring out the amount that you should monthly save. For effective long term saving, it would be best for you to forgo occasional one-off sums in favour of more regular saving, which will bring a slow but steady stream of surplus income. Thus, if you wanted to save £10,000 over three years, you would have to monthly set aside about £265. Saving a monthly £150 might be more practical, but that would mean having to reach the same final target in slightly over five years instead.