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Landlords may wish to reconsider plans to sell-off property as savings rates plummet

For many people buy-to-let has been an attractive income investment at a time of low saving rates and stock market volatility. But with the removal of landlords' mortgage interest tax relief set to come into play from next year, various reports suggest that many landlords plan to sell up in the coming months. But before they do, it is essential that they find other ways of growing their money, especially given the fact that the average easy access savings account now pays just 0.56% interest.

Earlier this year, research from the National Landlords Association found that as many as 500,000 properties could be sold by landlords by early next year following George Osborne’s tax attack on the buy-to-let sector.

In his July Budget he announced the removal of landlords' mortgage interest tax relief which, when fully implemented in 2020-21, will mean some landlords pay tax on zero income or even on losses.

And in November he announced that landlords would pay a 3% stamp duty surcharge, which was introduced in April.

While many landlords will undoubtedly pass on the costs to tenants by increasing rents, others plan to leave the sector. But the latest six-month review of the savings market suggests that they may care to reconsider their strategy.

As far as the savings market was concerned, the first half of 2016 was a total wipe-out, with the latest research from Moneyfacts.co.uk revealing that, since the start of the year, savers have witnessed a vast number of rate cuts, which have caused rates to plummet to new lows. For example, the average five-year fixed rate has fallen by a staggering 0.63% since January this year.

Charlotte Nelson, finance expert at Moneyfacts.co.uk, said: “Savers have been fighting an uphill battle to get a decent return in the first half of this year; over 900 individual cuts to savings rates have occurred since January, which is shocking considering that there have only been 111 rate increases over the same period. As a result, it’s not surprising that many have begun to wonder if the cuts will ever end.

“The positive competition kick-started last year by the challenger banks sadly proved to be short-lived. The harsh reality kicked in during the early months of 2016 and rates subsequently fell to record lows. For example, the average two-year fixed rate has dropped from 1.79% in January to 1.39% today.”

Providers at the top of the Best Buys are pounced on by savers who are desperate to secure a decent interest rate, and as a result, these deals rarely remain on the market for long. Therefore, providers who want to be at the top of the market only need to offer a reasonable return to move into prime position.

The fall in SWAP rates has also had a negative impact on the fixed savings market, according to Nelson.

She continued: “A drop in these [SWAP] rates means that it’s now cheaper for providers to fund their mortgage book, which has led to a drop in longer-term investment rates. Quite simply, providers don’t need savers’ funds, so they don’t need to compete in terms of interest rates.

“Mark Carney’s announcement that the Bank of England Base Rate could fall past its record low of 0.50% in the near-future means that savers need to brace themselves for even tougher times ahead. If a good deal is to be secured, savers will have to shop around and work hard, and keep a close eye on the market.”

Jan-16

Apr-16

Today

Average Easy Access Account

0.64%

0.61%

0.56%

Average One-Year Fixed Rate Bond

1.43%

1.27%

1.15%

Average Two-Year Fixed Rate Bond

1.79%

1.55%

1.39%

Average Five-Year Fixed Rate Bond

2.63%

2.37%

2.00%

Source: Moneyfacts.co.uk

 Compiled: 11.7.16

  • Mark Hempshell

    Exactly. The fundamentals that attracted so many people to BTL in the first place still exist. Who would switch a property making 'just' 4% for a savings account making 0.1%? (A taxable 0.1% I should add!)

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