In Part 2 of our Buy-to-Let series, ‘Buy-to-Let: time to let go?’, we looked at the pressure being placed on private property investors by various government announcements made in 2015. These included the removal of higher rate tax relief on mortgage payments and the proposed 3% premium on stamp duty for property investments and second homes.
The media has since been awash with articles relating to these tax changes with many declaring that the majority of buy-to-let investments would be loss-making within five years.
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Only a few of these articles have mentioned the next potential threat to private residential property investment, the restrictions on lending criteria.
The government is set to hand the Bank of England the power to restrict a property investors’ ability to borrow, on buy-to-let properties, by limiting the LTV at which lenders can lend. This has already happened in the residential mortgage market as part of the reforms where caps were placed on income multipliers for applicants. We have seen similar restrictions being placed on property investment finance in Hong Kong; however, this is the first time it will happen in the UK, and it will be interesting to see the impact it will have on a private investor who is already hurting from the new tax reform.
These changes will not only affect investors buying new properties, meaning they will need much larger deposits, but also those looking to re-finance in order to release capital and reinvest. There may even be forced sales where investors needing to move mortgages no longer have enough equity in the property to support a buy-to-let mortgage.
Investing has always been about your best alternative and the opportunity cost. The ability to generate a return on buy-to-let has long been overly reliant on capital gains, due to pressure on yields. For investors looking for income and compounded interest returns there are alternatives out there.
Proplend is a Peer-to-Peer Lending platform that specialises in loans secured against income producing, UK commercial property. As a Lender you receive income over a fixed term with your interest paid monthly.