Landlords are paying the lowest mortgage rates in two years – but rumoured changes in the upcoming Budget could leave them at “breaking point”, experts have warned.
The average fixed two- and five-year buy-to-let mortgage rates have remained below 6 per cent since the start of 2024, the lowest levels since the start of September 2022, before Liz Truss’s mini-Budget which sent rates soaring.
There have also been more options on the market as lenders adjust their ranges to accommodate demand.
However, landlords could decide to leave the market as a result of this week’s Budget with several changes expected that will directly affect them, including a rumoured increase to capital gains tax (CGT).
Experts warned buy-to-let mortgage rates could also start to increase over the next few weeks following the fiscal event.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Landlords will be on tenterhooks to see how the upcoming Budget will play out and lenders may remain fluid with their fixed rate pricing over the next few weeks, particularly due to volatility surrounding swap rates.”
She said landlords could “reach breaking point” if stamp duty relief is unwound as planned next year, adding those facing dwindling profits may sell up, leading to a mass exodus.
Should the CGT rise, Ms Springall warned there may be an increase in the number of sales during a window of opportunity to avoid paying the increased rate.
CGT is a tax on the profit when you sell something that’s increased in value. The tax is on the gain you make, not the total amount of money you receive. For example, if you bought a home or shares for £50,000 and sold later for £100,000, you’ve made a gain of £50,000 which would be your taxable income (£100,000 minus £50,000).
Currently the rate of CGT is either 18 per cent on gains for residential property for basic rate taxpayers, or 24 per cent for higher and additional rate tax payers. For assets other than property it is 10 or 20 per cent.
While the tax is expected to go up, opinion is divided how high it will go.
Chris McLaughlin, director at Bristol-based Ocean Estate Agents, said: “Buy-to-let activity has notably declined as smaller or accidental landlords exit the market, influenced by less favourable financial conditions and increasing regulation.
“Additionally, transaction completions have risen in the last couple of months, particularly within the investment property sector, as sellers seek to conclude deals ahead of potential changes anticipated in the upcoming Budget.”
Landlords have been finding ways to negotiate tighter restrictions, often setting up limited companies to manage their portfolios as it can often be more tax efficient.
The number of limited companies set up between January and September this year was 23 per cent higher year on year and 70 per cent of new buy-to-let purchases in England and Wales are now made using a limited company, according to Hamptons estate agents.
Despite this, Ms Springall said: “The margin of profit from rental income may well be tighter than expected, but property is still regarded as a safe long-term investment.”
Those who are due to remortgage in the coming weeks are encouraged to seek professional advice.
Ms Springall said: “Any borrowers concerned about their present situation would be wise to seek independent advice if they need support or indeed to navigate the latest deals if they are due to refinance in the next few months.”
'President Musk' is flexing his muscles and revealing how weak Trump is