According to recent research, buy-to-let investors in seven UK towns could be facing huge debts in 2020, if interest rates increase by 2.5%.
The study was conducted by Property Partner, a crowdfunding platform. The study indicated that a combination of tax changes due to take place this year, stamp duty changes and rising interest rates, could all lead to potential losses for landlords.
The town which would be affected most appears to be Salisbury, where the average net profit annually is £2,200. However, if interest rates increase to 2.5% and the tax relief is gradually phased out, the annual loss will be £2,984 for each property. Cambridge would also be adversely affected, as landlords currently have an average annual profit of £4,257. In 2020, this could easily be reversed to result in a loss of £2,418.
If interest rates did reach 2.5%, landlords would find buy-to-let unprofitable in seven out of ten cities and towns in the UK. Only one location out of five would demonstrate a profit of £100 a month or over. According to the CEO of Property Partner, Dan Gandesha, the gradual phasing out of tax relief on mortgage interest will make an impact on the income of landlords. Combined with the interest rate increase, it will be bad news for buy-to-let.
However, interest rates are currently low and there’s been no intention voiced of increasing the rates. Landlords may also decide to increase rents to cover the losses. A CeMAP qualified mortgage adviser will be able to ensure landlords have the most suitable mortgage for their purposes.
