A leading mortgage broker has recently performed a detailed analysis of the buy-to-let sector and has concluded that investment in the market is still an attractive proposition.
Private Finance also noted that accessing necessary finance will prove to be the greatest challenge for amateur landlords looking to enter the sector.
The firm’s analysis accounted for the upcoming changes to the market, such as the reduction of higher rate tax relief and hikes in stamp duty, alongside the impact on house prices and yields.
In addition, the broker looked at the impact of the European Mortgage Credit Derivative and found that whilst these factors might have a negative impact, they are most unlikely to harm to market as a whole.
As part of its analysis model, Private Finance used an average buy-to-let situation in a typical town. The findings show that a potential 62% return on capital could well be an achievable goal. This is on the basis that the investment is held for at least five years, utilising a fixed-rate mortgage at 3.6% for the duration.
A number of industry commentators have noted that annual capital appreciation of up to 5% is achievable in some areas. However, Simon Checkley, managing director of Private Finance believes that a buy-to-let investment remains viable at a smaller rate of appreciation.
Checkley said that, ‘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 appear.’
‘We are not underestimating the impact of the loss of higher rate tax relief of the increase of stamp duty on the market. What we are saying is that they are not necessarily deal brokers. 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 are still opportunities in this market if an investor makes a sound purchase subject to other underlying economic factors, ‘he continued.
Concluding, Checkley said that, ‘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.’