Rising interest rates and stricter lender criteria have placed a strain on buy-to-let profits in recent months but despite the uncertainty, opportunities for landlords remain. Here are three reasons why.
1. Tracker rates are still attractive
Despite average fixed rate buy-to-let products inching up to 6% in recent months, tracker rates are hovering at a much lower 4%, prompting some landlords to consider making the switch.
Tracker mortgages tend to be more flexible too. You can opt for a deal with no early repayment charges for example, which gives you the option to switch to a fixed-rate deal if rates fall back to more sustainable levels.
As a type of variable rate mortgage, tracker products do move in line with the Bank of England’s base rate, with a fixed percentage added on top by the lender. This means your mortgage repayments could increase as the bank rate rises. It’s therefore important to weigh up the risks to see what would best suit your situation.
2. Lender criteria could ease
Borrowing levels across buy-to-let and other lending criteria have also come under pressure, with some lenders requiring larger deposits than before – but these restrictions are not expected to last.
As a whole-of-market broker, Knight Frank Finance has access to over 200 lenders so will be among the first to know of any easing in criteria or changes to products. For this reason, it’s worth speaking to a broker early about your plans and requirements, to make sure you can act quickly should conditions become more favourable for your circumstances.
3. Limited company structure benefits
Purchasing a buy-to-let property through a limited company offers several benefits, including tax efficiencies and aiding succession planning.
When a property is purchased in your name, the rental profit is added to your other earnings and taxed as income. Rental profits on properties in a limited company, however, are taxed at the current rate of corporation tax, which tends to be around half of the higher rate of income tax. You can also offset the mortgage interest as a business expense.
Children can also be added as directors or shareholders of a limited company, without being impacted by inheritance tax, an important consideration for many in succession planning.
It’s always advisable to seek professional tax advice to assess what options are best suited to you. Knight Frank Finance has partnered with Get Ground – an organisation that helps clients set up limited companies to purchase properties – making the process easier and more efficient. Get Ground offer advice on how to set up, structure and manage a limited company, and offer accounting services too.
If you’d like to whether any of these opportunities apply to you, speak to our specialist buy-to-let broker Huy Le, who will be able to help you identify the best financial approach for your circumstances.