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Buy-to-let “still attractive” according to broker

A mortgage broking firm has analysed the market and concluded that buy-to-let remains an attractive investment in the immediate future. 

However, Private Finance has also warned that accessing finance will now be the biggest challenge for amateur landlords in the new market landscape.

The market analysis took several key factors into account including the reduction in higher rate tax relief, the stamp duty increase and the outlook for house prices and yields. 

The broker has also considered the impact of the European Mortgage Credit Derivative (MCD) and concluded that whilst these factors may have a negative impact, they are unlikely to dampen the market altogether.  

Private Finance has applied its model to a typical buy-to-let situation in a typical commuter town. Its findings demonstrate that a potential 62% return on capital could be achievable, if the investment is held for a term of at least five years utilising a fixed rate mortgage at 3.6% for the duration which is currently available in today’s market. 

Whilst a number of commentators have suggested that annual capital appreciation of as much as 5% is achievable in areas such as this, Simon Checkley, managing director of Private Finance has said that a buy-to-let still remains viable at a lower rate of appreciation.

“Of course, these figures assume the full extent of the tax relief reduction and stamp duty hike so the short term returns could look more attractive if you are able to take immediate action and complete a purchase before 1 April 2016 when the increased stamp duty will apply,” he said, “We are not underestimating the impact of the loss of higher rate tax relief or the increase in stamp duty on the market. What we are saying is that they are not necessarily 'deal breakers'. Of course, there have been many protestations in recent weeks from concerned landlords as a result of the planned tax changes. What is less commonly recognised is that there are still opportunities in this market if an investor makes a sound purchase subject to other underlying economic factors. Understandably, many landlords are claiming they will lose considerable sums of money as a result of these changes. However this does beg the question of the true viability of their original investment.”

Checkley went on to say that it can be difficult to make things work in London because house prices are such that yields remain relatively low. He explained that this affects the amount of mortgage investors can obtain and therefore the attractiveness of buy-to-let as a whole. However, a number of commuter towns by contrast are offering both the potential for capital growth as well as decent yields.

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    I find BTL investment bit of a problem really. It is not an investment you can just invest and forget! There is a lot of hard work and continuing costs. I have 5 such properties and all I have done is loose money on them. I am providign subsidised accommodation to the tenants at my own cost!! Too many regulations and I have to look after these houses much more than my own one!! I can live with my family in less safe house - government doesn't care about it but I must provide a top quality accommodation to the tenants, all this with more tax and stamp duty (which will make selling any of my properties a problem in future). Only with 5 properties I find it a really time filling business with no returns to myself! Its a worst possible investment in present climate. Don't be fooled by those saying it is still a good investment as they are saying so to keep their business safe!

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    I tend to agree with you as diminishing returns are starting to set in.
    Anywhere outside the 'London bubble' and prosperous South East is going to be 'hit for six' with continuing expense through ongoing regulation, thereby eating away at income.
    Landlords in areas outside the above mentioned are going to have to absorb the extra costs due in the main to an inability of tenants to pay higher rents.
    Unfortunately, the vast majority of us who rent responsibly are being punished for the actions of others.

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