It’s easy to have a gloomy outlook if you’re a landlord or considering becoming one. Interest rates are higher, so having a mortgage is much more expensive than it was twelve months ago and the tax position is much less favourable. Let’s get past the bad news first – warning, there’s plenty of it!
How much tax will I pay as a landlord?
Buy to let landlords now must pay tax on their entire rental income irrespective of mortgage interest costs. Instead, landlords now receive a 20% tax credit, meaning less in tax relief if you’re a higher rate tax payer. Capital gains tax when you sell will be higher post April 2023 and higher still post April 2024. You’ll also pay 3% more in stamp duty.
How much can I borrow for a buy to let property?
First of all, you’ll need a chunky 25% deposit, but the maximum you can borrow is linked to the rental income you expect to receive,. The lender will want to ensure that your rental income covers your mortgage repayments with a surplus of an additional 25% – 30%. You’ll also need to be earning £25,000 or more a year for most lenders to accept your application.
What are the new EPC Laws for landlords?
Many would say that the final nail in the coffin comes with the new EPC rating rules which come into effect in 2025. Currently, landlords need an EPC rating of at least E to be able to rent out their property. In 2025, the qualifying band will change to C for new tenants and any existing tenancies will have until 2028 to do the same. Retrofitting homes to upgrade to the new EPC C minimum standard is unlikely to be cheap.
Is there any good news for landlords?
The property market is currently slowing as high mortgage rates and the cost-of-living bites and lowers demand from buyers. In addition to this, all the problems mentioned above have made many, who would normally be keen to get on the buy to let bandwagon, think twice. As a result, bargains abound for those with the stomach to get involved. Markets go through cycles and those who buy when times are tough tend to reap dividends when favourable times return.
What is the rental demand?
With the lustre of buy to let having somewhat faded over recent years, many landlords have decided to drop out and sell up. High interest rates have made it harder for first time buyers to get into the property ladder. The combination of these two factors means demand for rental property far outstrips supply. This is reflected in rent, which has increased dramatically in some parts of London. Good news for the landlord.
Should I invest in a buy to let property in 2023?
This question isn’t as easy to answer as it was a few years ago where the answer would have been a resounding yes. There’s a lot more to consider these days. Anyone thinking of getting involved to make a quick buck should probably walk away. Those who are in it for the long term, perhaps as a boost to their retirement income, could reap dividends. After all the concept of having rental income that pays for the majority of the cost of ownership of your property still rings true. My advice would be to consult with an expert. They would help you to get your sums right and ensure that there were no nasty surprises waiting for you.
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