Cut-price properties tempting investment buyers, says accountancy chief

Some prospective buy to let landlords may be about to use their equity to snap up investment properties at discounted rates, an expert forecasts. 

Tom Young, associate director at Hampshire accountancy firm HWB, says that some landlords have equity and are able to ‘ride the storm’ of higher interest rates. 

“But they should factor in the risk of a squeeze on rental yields if tenants struggle to keep up rent payments?” he asks. 

“It’s inflation and the overall cost of living that is making this such a challenging time in the market.”

He says one way BTL landlords can mitigate the risk of mortgage interest is by purchasing the property using a company or incorporating an existing portfolio. 

“Companies do not incur the same restrictions on claiming mortgage interest against rental profits as individual landlords. It is therefore worth running the calculations to ascertain whether it is best to purchase the property as an individual or in a company.

“There are many other factors that should be taken into consideration. For example, mortgage rates for individuals tend to be lower than that offered to a company and you have to consider Stamp Duty Land Tax and Capital Gains Tax.

In the wider market he says buyer and investor activity is changing in the light of economic headwinds.

“The cost of borrowing is now at its highest level since the 2008 financial crisis. The combination of the increased cost of living and mortgage rates has led to many individuals deciding to pay off lump sums of their mortgages rather than move. This has contributed to the decline in the housing market and prices.

“On the face of it, lower house prices may seem like good news for prospective buyers but not if it is offset by higher mortgage payments. We’re already seeing the level of mortgage arrears at a seven-year high, a clear indication of pressure on affordability, and the number of new mortgage loans declining markedly.”

He says that with signs that rates may be close to a plateau, some mortgage lenders have cut fixed rates for two and five-year terms.   

Young continues: “It’s therefore possible that buying a home could become more affordable in future but, at the moment, prices have generally not decreased enough to balance out the higher interest rates. We are certainly seeing an increase in enquiries from people looking to mitigate property sector pressures.

“Many of those who took advantage of the Stamp Duty holiday during Covid will now be renewing their mortgage terms and be faced with a steep increase in repayments. And owners of highly geared properties, where the level of debt versus equity is high, could end up with the pain of negative equity.

“We’re also seeing mortgage providers becoming more stringent before they approve loans, carrying out additional checks on risk profiles and requesting cash flow forecasts while they ‘stress test’ the ability to make repayments.”