Are rate rises an opportunity?


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including Mail on Sunday Property and City AM.

Carry on investing seems to be the key message Gordon Brown gave the buy-to-let industry in his 10th budget. The jury might still be out on whether his main change to income tax was a tax cut or a tax con. But as far as property was concerned most of our worst fears came to nothing

A lot of investors had been bothered by rumours that Brown’s grand gesture might have been to allow first-time buyers to opt-out of paying stamp duty. This could have been enough to persuade plenty of professional tenants that they could finally afford to buy. But while the Conservatives might still be looking at this proposal it’s at least likely to be several years away and many commentators say it will always be unworkable in practice.

In the meantime it’s worth noting that the stamp duty allowance that everyone gets did just edge up – nothing is due on any properties bought for less than £125,000 rather than £120,000. Few people think that Gordon Brown’s modest extra support for shared ownership schemes will also create much of run from rented accommodation either, so landlords got another shot in the arm.

Even better news was that none of our key tax breaks were upset in the Budget either. The offsets, allowances and the tax relief on offer to property investors all look intact. The final tweakings to the wildly complicated Real Estate Investment Trust or Reits market are equally unlikely to have any effect on residential landlords.

So what are the prospects for property over the rest of the spring and the rest of the year? The most newsworthy point to make comes from the latest figures from the Department for Communities and Local Government which show that the number of people owning their own homes has fallen for the first time since the 1950s. The figure for 2006 has just been released and shows that the number of owner-occupied homes fell by 25,000 to 14.6 million. Meanwhile the number of people in privately rented accommodation continued to rise – up by 12 per cent in the past year to 2.4 million households. If ever there was a stigma over renting rather than buying then it is fading fast – good news for landlords who supply a quality product to their tenants.

Another of this week’s interesting news stories comes from the Property Finder company. Its research shows that the cost of moving house has tripled in a decade and now stands at an average of £9,486. ‘In the past there was little to prevent people making a number of small steps up the housing ladder. Now people are reluctant to move or are making fewer, bigger steps up the ladder,’ says the firm’s Warren Bright. That’s got to be the same for many buy-to-let tenants. Instead of buying a studio or one-bed flat as soon as they possibly can I reckon many will stay renting until they think they can afford something like a two bedroom house. More good news, of course, for landlords.

Next week’s decision on interest rates by the Bank of England will give another suggestion of how things might change later in the year. Inflation is rising by more than the Bank wants, so another 0.25 per cent rise is on the cards on Thursday April 5th. But as I wrote in my earlier comment – ‘Great News For Buy-to-Let Investors: Interest Rates Set To Soar’ – this might be no bad thing for the sector, though it should be a wake-up call to get in touch with your broker and check you are on the best possible mortgage deal. If you are on a fixed or discounted deal that is due to expire in the summer then it is probably worth calling a good independent broker now so you can move seamlessly on to a new deal when the time comes. Leave it too late and your payments will hit the new standard variable rate – far above what was being charged when the best two or three year deals were taken out in 2004 or 2005.

Overall I certainly wouldn’t say that everything looks good for buy-to-let investors this year, or that everyone is for in for an easy ride. Making real money is getting a lot harder and selling a buy-to-let at a profit might take a whole lot longer. There is also a whole lot more competition for tenants, with some 150,000 new buy-to-let mortgages taken out in 2006 alone, according to the Council of Mortgage Lenders. But for another year at least we can at least hope we’re not going to have any new interference from politicians or the taxman. It certainly looks as if a new Chancellor will deliver the Budget in 2008. Hopefully he, or she, will follow Gordon Brown’s lead and leave property investors alone. We ain’t broke and we don’t need fixing. Long may it stay that way.