29th
Feb 2016
The majority of UK towns and cities would suddenly become unprofitable for buy-to-let if interest rates go up by 2.5%.
A crowd funding buy-to-let investment platform reports that as many as 7 out of 10 Britain’s cities and towns’ landlords properties, could lose up to £325 per annum, causing bankruptcy for some landlords.
The platform researched over one hundred of the UK’s biggest cities and towns to project the effect of interest rate rises and the changing mortgage interest tax relief, would have on their private rented sector.
The research team estimated the worth of an average property in each of the areas and the typical rent. Into the equation they guesstimated that properties had a 60% loan to value (LTV) buy- to –let loan which is fixed at 3% for three years.
They then calculated the UK average total of annual rent profit being at present £3,419, but by 2020 it will fall to £2,555, even if the rates were not increased from the existing 3%, solely down to the phase out of the tax relief.
The impact of a 2.5% raising of interest rates would be disastrous if introduced by 2020, as the average annual rental profits of a property within 68% of towns and cities, would turn into a loss of £325 per year.
The CEO of the property platform, says: "The phased withdrawal of mortgage interest tax relief will be felt across the country, but add in a modest interest rate rise, and many investors will see their rental profits completely wiped out.
“When you factor in April’s stamp duty hike on new property purchases, it’s clear that direct investment in buy-to-let no longer adds up.
“It’s a tipping point. Landlords will lose out but millions more will be better off, with more affordable homes for first time buyers, more high-quality accommodation for tenants, and an asset class made available for everyone to invest in.”
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