The buy to let market has had its fair share of knocks in 2018. What was once a booming market has crawled through most of this year thanks to several regulations changes, the end of tax relief, rising stamp duty and a base rate rise.
And it’s this base rate rise that has seen buy to let mortgage rates rise by 0.20%, which has been the highest monthly rise on record. Still, with years of borrowers enjoying a record low base rate, there was always only one way to go – and that was up.
The 2nd November 2017 base rate rise was probably the stick in the sand that cordoned off the era of low mortgage rates across the whole of the board. Both tracker and fixed rate buy to let mortgages have seen rises in the past month.
So what will this mean to landlords and buy to let property as a whole?
There’s a general consensus in banking circles that the market is due to slump in the not so distant future. While new landlords are arriving on the scene, the number of outstanding buy to let loans is reducing, meaning that there are existing landlords who are cashing in and leaving the market.
And the government have been making it harder and harder for landlords to turn a profit. With the hope that more properties would be available to first time buyers, the Conservatives put in measures to try and put off the number landlords coming into the market.
The tax relief change that they implemented was possibly the biggest game changer. Previously landlords would receive tax relief on interest paid on the buy to let mortgage. This was set by former Chancellor George Osborne but has only kicked in now, meaning a huge difference in profit for landlords all over the UK.
For a landlord to profit from a let property now, they would either need to raise the rent, or pray that house prices reduce. The former is not an option in some areas that are already seeing record rent prices. The latter is wishful thinking.
Many landlords will get a nasty surprise when they speak to their accountants in the next twelve months. What may already have been slim profits might actually end up costing the property owner. Something that the government can chalk up as a victory – instead of being tasked with the job of building more affordable housing as they’ve been under pressure to do.