Treading the tightrope of buy-to-let success
The buy-to-let sector may have been earmarked for growth in 2008, but there is an emerging air of fear that could require some delicate steps from landlords in the short-term.
This issue becomes even more prevalent because of the increasingly widening scope of the industry, which is slowly uncurling to incorporate not just professional landlords, but also those high-earners seeking buy-to-let mortgages for professionals.
Under pressure
HM Revenue & Customs (HMRC) are beginning to turn the screw on the tax declarations of landlords, while this week the sector has come under fire for pricing first-time buyers and graduates out of the market.
In addition to this, the increasing pressure in the lending sector may not stave off mortgages for professionals such as buy-to-let for long.
This, coupled with increasing house prices, could lead to many landlords losing out on the value of their properties.
Tax avoidance
Buy-to-let mortgages currently account for around £108 billion, or ten per cent, of outstanding homeowner loans - an increase of three per cent compared to five years ago.
With the market showing no signs of slowing, naughty landlords that have failed to declare their tax are responsible for the latest auditing push from HMRC, which last week sent more than 500 hundred letters asking for missing money back.
But according to Peter O'Donovan, mortgage manager at Bestinvest, legitimately side-stepping tax for buy-to-let landlords is simply a matter of ensuring your rental yields are closely aligned with mortgage repayments.
"They can then offset the mortgage payments and just pay tax on the profit they make.
"So hopefully someone else will be paying their mortgage and they'll be paying less tax, and in the meantime the property value hopefully increases."
Many are also eager to make good use of superfluous earnings in the property market to build up a portfolio, which will eventually reap dividends in property value in the right areas.
Mr O'Donovan advises that "properties with less mortgage left to pay can maybe be used to borrow more than the normal 85 per cent to make a new purchase".
One house too far
But there is also a wider issue, concerning the suggestion that increasing numbers of buy-to-let investments are driving house prices beyond the reach of first-time buyers.
If true, this could have repercussions for the market as a whole.
Paul Holmes, chief executive officer at Firstrung, the responsibility lies as much with the landlord investing in more property as its does with the lenders continuing to lend.
"Lenders should have shut the door on buy-to-let completely from October onwards," he explained, adding that for landlords "the list was endless about bad property news, and they kept on investing".
"If and when it decouples and newbie buy-to-let investors find themselves in problems, then they may kick and scream with the lender but they only have themselves to blame."
However the jury is still out, with the National Housing and Planning Advice Unit (NHPAU) claiming that buy-to-let had only made a "small contribution" to house price inflation.
Malcolm Harrison, spokesperson for the Association of Residential Letting Agents (Arla), agreed with this assessment, claiming it was a "load of rubbish" that buy-to-let had priced out first-time buyers.
Only time will tell, but for landlords to reap the full rewards of house price rises, there is a sense in which they must also, collectively, invest responsibly. For the sake of their own investments as much as for first-time buyer's purchases.
Mortgages for professionals is a whole-of-market broker providing expert mortgage advice to high earning professionals such as pharmacists, engineers and doctors
This issue becomes even more prevalent because of the increasingly widening scope of the industry, which is slowly uncurling to incorporate not just professional landlords, but also those high-earners seeking buy-to-let mortgages for professionals.
Under pressure
HM Revenue & Customs (HMRC) are beginning to turn the screw on the tax declarations of landlords, while this week the sector has come under fire for pricing first-time buyers and graduates out of the market.
In addition to this, the increasing pressure in the lending sector may not stave off mortgages for professionals such as buy-to-let for long.
This, coupled with increasing house prices, could lead to many landlords losing out on the value of their properties.
Tax avoidance
Buy-to-let mortgages currently account for around £108 billion, or ten per cent, of outstanding homeowner loans - an increase of three per cent compared to five years ago.
With the market showing no signs of slowing, naughty landlords that have failed to declare their tax are responsible for the latest auditing push from HMRC, which last week sent more than 500 hundred letters asking for missing money back.
But according to Peter O'Donovan, mortgage manager at Bestinvest, legitimately side-stepping tax for buy-to-let landlords is simply a matter of ensuring your rental yields are closely aligned with mortgage repayments.
"They can then offset the mortgage payments and just pay tax on the profit they make.
"So hopefully someone else will be paying their mortgage and they'll be paying less tax, and in the meantime the property value hopefully increases."
Many are also eager to make good use of superfluous earnings in the property market to build up a portfolio, which will eventually reap dividends in property value in the right areas.
Mr O'Donovan advises that "properties with less mortgage left to pay can maybe be used to borrow more than the normal 85 per cent to make a new purchase".
One house too far
But there is also a wider issue, concerning the suggestion that increasing numbers of buy-to-let investments are driving house prices beyond the reach of first-time buyers.
If true, this could have repercussions for the market as a whole.
Paul Holmes, chief executive officer at Firstrung, the responsibility lies as much with the landlord investing in more property as its does with the lenders continuing to lend.
"Lenders should have shut the door on buy-to-let completely from October onwards," he explained, adding that for landlords "the list was endless about bad property news, and they kept on investing".
"If and when it decouples and newbie buy-to-let investors find themselves in problems, then they may kick and scream with the lender but they only have themselves to blame."
However the jury is still out, with the National Housing and Planning Advice Unit (NHPAU) claiming that buy-to-let had only made a "small contribution" to house price inflation.
Malcolm Harrison, spokesperson for the Association of Residential Letting Agents (Arla), agreed with this assessment, claiming it was a "load of rubbish" that buy-to-let had priced out first-time buyers.
Only time will tell, but for landlords to reap the full rewards of house price rises, there is a sense in which they must also, collectively, invest responsibly. For the sake of their own investments as much as for first-time buyer's purchases.
Mortgages for professionals is a whole-of-market broker providing expert mortgage advice to high earning professionals such as pharmacists, engineers and doctors
