There was much speculation in the City yesterday that the base rate would be reduced at the Monetary Policy Committee monthly announcement. However, the Bank of England held firm, and maintained rates at 0.5%.
The Bank said they were acting cautiously in the aftermath of Brexit and indicated that a rate change would be more likely for August. Following the BOE announcement, the pound surged against the US dollar. This, along with Theresa May taking the helm as our new Prime Minister, will undoubtedly help to stabilise the economy.
There has been much confusion and uncertainty following the EU Referendum vote, but, at times of uncertainty there is always opportunity for those who are willing to get off the fence and take action. For landlords, there are actually a number of positive things that could come out of Brexit.
If the base rate is reduced further, then, if you are on a Standard Variable Rate, your monthly payment will probably decrease, giving you greater monthly net cash flow. Additionally, savings rates will decline, meaning that more people will consider investing in property for a better return, and this will help stabilise house price growth.
If, as being predicted in a number of quarters, property prices do correct, landlords may be able to pick up a bargain! It’s worth keeping in touch with your local Northwood agent to find out if any sales fall out because of Brexit anxiety. If you are able to step in and save the day, there may be a deal to be had!
We are already seeing many BTL lenders drop their mortgage rates to entice landlords. Santander, Nationwide, Aldermore, Pepper Home Loans, Precise Mortgages, Nationwide/The Mortgage Works, Dudley BS, Interbay, Kent Reliance, Mortgage Trust, Keystone and Nottingham Building Society have all dropped their buy-to-let rates or raised their maximum loan-to-values in order to attract landlord business.
There is already an increased demand for lettings as people who are uncertain about the market decide to let rather than buy until the dust settles. This may also mean that tenants want to stay for the longer term whilst they decide if they are going to buy their own property, meaning higher tenant demand.
Rightmove reported yesterday that rental enquiries were up 2% in Q2 compared with the same period last year, and up 1% in the two weeks after the referendum compared to same two weeks in 2015, as the lettings market shows no immediate signs of Brexit impact.
As always, landlords should look in areas of high tenant demand when considering purchasing a property and Greater Manchester is currently topping the Rightmove tenant enquiries chart.
Finally, Brexit forced the resignation of George Osborne, the architect of Section 24* of the Finance Act 2015 – and Philip Hammond MP was announced this week as his successor. Mr. Hammond, a landlord himself, may prove to be more sympathetic towards landlords.
Northwood M.D., Eric Walker, commented:
“Amidst all the doom and gloom put about by the media, savvy landlords will be seeing opportunity right, left, and centre.
Whenever there is market turmoil, those that take decisive action can do very well.
With interest rates at an all time low, attractive mortgage products, and short-term uncertainty, now is the time that many landlords should be looking to increase their portfolio to take advantage of this raft of favourable conditions.
One note of caution however. We advise all landlords to seek professional tax advice, as to whether to acquire investment properties in their own name or in a limited company structure, as this is an important consideration as the countdown to Section 24 in April 2017 continues … “.
Northwood supports the Judicial Review into Section 24, the legal challenge being made by co-claimants Steve Bolton and Chris Cooper.
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*Section 24 of the Finance (No.2) Act 2015, which received Royal Assent on 18 November 2015, will start to apply from the 2017-18 tax year and, in graduating stages up to 2020-21, will reduce a landlord’s ability to offset mortgage interest costs against rental profits before calculating the amount of tax payable to the Government.
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