As Interest rate set to increase, put a contingency plan in place.

11 11 2014

It’s highly likely that interest rates will start to rise during the course of the next couple of years. However, I think the increases to Bank of England Base Rate will be small and in gradual increments, perhaps reaching 2.00% by the end of 2016. This of course means that the pricing of Buy to Let (BTL) mortgages is also likely to rise, as lenders retain their profit margins.

When considering the implications of a potential rate rise, there is no need for landlords to panic, but some contingency planning is definitely prudent. It is advisable to consider whether current rental income is sufficient to cover any increase in monthly mortgage payments and to ensure a surplus for potential void periods. Most lenders are conservative with their rent stress tests and will only approve a BTL mortgage where the rental income is at least 125% at a notional interest rate of 5.00% of the loan amount. This should provide a sufficient rental income buffer for most properties.

Fixed rates

For landlords who prefer to know exactly what their monthly payments are going to be, choosing a fixed rate mortgage may be the preferred option. At Belvoir Lettings Mortgages, our most popular BTL products are often two-year fixed rates. However, there has also been an increase in demand for three-year and five-year fixed rates in recent months.

There is certainly a good argument for fixing over a longer period such as five years. Although five-year money is more expensive and the monthly mortgage payment will be higher, it does provide security and peace of mind over the longer period when interest rates start to rise.

Although the Base of England Base Rate is predicted to rise, I believe that three years into the future the “new normal” is likely to be between 3.00% and 4.00% and that rates will remain lower than historical “pre-credit crunch” rates of around 5.00%





Top tax tips for landlords

10 04 2010

Whether you have 1 house or 50, if you are a buy to let landlord then you are in business and that means that there are certain costs that you can claim against your income tax. Today I’ve been looking at what are the main costs that landlords might be able to claim for. Remember, this is all extra money that some landlords leave on the table. So start claiming now and keep the tax that is rightfully yours.

Motoring expenses

You almost certainly have to drive from time to time for business purposes. A trip to the letting agents, a trip to the property, you might drive to an auction, or the bank to discuss your mortgage deal. These are all journeys that are made for the sakes of your business, and therefore they are costs that are tax deductible. You can claim for the petrol and other costs of each journey, as well as a portion of the costs associated with running your car – insurance and servicing for instance. You have to be honest though, if you don’t use your car for business, you can’t claim for it.

Travel costs

As well as your petrol, you may actually have to spend the night somewhere from time to time, if you are scouting for properties at the other end of the country, then you can write off hotel costs, and any meals as an expense. Be careful though, if you take your whole family with you and spend a weeks holiday at the same time it will be classed as a pleasure trip.

Wear and tear

If you rent out your properties furnished, you will be losing money on ‘wear and tear’ of that furniture, obviously this is another cost, since you will eventually have to replace it. Generally you can claim as much as 10% of your rent as a deduction to cover wear and tear.

Repairs to the property

This is an obvious one, but it is still surprising how often landlords forget to claim for it. If you pay out to repair something, no matter how trivial, you can claim the cost against your tax. Small costs add up, especially if you have a few properties, so this one alone could save you a small fortune.

Agency fees

Any costs incurred as fees can be claimed. This refers only to fees to do with letting the house, not the fees associated with buying it (although these fees can be claimed against capital gains tax when you sell). That means if you have an advertising fee, or a tenant find fee etc.

Learning and Networking

If you visit a property seminar, or a networking event for the purposes of your business then that is a claimable cost. Books and other course material is also claimable, provided it is for the purpose of expanding your knowledge base and benefiting your business.

Office and admin

If you rent an office you can of course claim that. But if you do your admin at home, you can actually apportion an amount of rent to the space taken up by your business practice. This can be offset against your rent or mortgage.

Interest

I left the biggest one till last. This is one you do not want to forget about, if you are not claiming for interest then you are losing out. If you secure a loan against your own house to buy a rental house that doesn’t matter. The important thing is what the money is used for. So if you use the loan to buy a rental property then the interest is tax deductible.

Of course you should speak to a good accountant if you are unsure about whether a specific cost is deductible, but this post will hopefully give you an idea of the sorts of things that you might be able to claim. Small bits add up, and if you start claiming for every allowable expensive, you might be surprised at how much money you can save.