MTTM Podcast Episode 419 – Navigating the Buy-to-Let market, concessionary mortgages explained and maximizing junior ISA contributions

3 min Read Published: 18 Jun 2023

Episode 419 - On this week's episode I take a look at the current state of the buy-to-let market, exploring the yields on offer and how the latest mortgage rate hikes, as well as changes to tax rules and legislation, are impacting landlords. Next, Harvey explains how concessionary mortgages work and who can benefit. Finally, I explain how a tax quirk can allow investors to put up to £36,000 into a Junior ISA in just a matter of months, despite the annual £9,000 contribution limit.

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Abridged transcript of Episode 419

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Buy-to-let market

In this part of the show I talked about the buy-to-let market including the yields on offer and how the latest mortgage rate hikes, as well as changes to tax rules and legislation, are impacting landlords. Some of the highlights include:

  • Over the past three decades, the private sector landlord community has experienced an astounding surge, witnessing a rise from a modest 1.7 million landlords in 1989 to a substantial 4.6 million at present (source: Financial Times)
  • Hamptons' research (see link in Resources section) reveals that in 2022, rents experienced an average uptick of 6%, and predictions suggest a further increase of 5% in 2023, followed by 4% in 2024. These projections persist even as house prices remain stagnant or potentially decline.
  • For landlords, the focus naturally gravitates toward the yield, which compares the rental income against the capital expenditure involved in acquiring the property. Here, a significant north-south divide emerges, with the north of the UK boasting yields of approximately 7.4% compared to 5.2% in the south, signifying a gap of 2.2%. 
  • Potential buy-to-let Investors (or those thinking of expanding their portfolio) may want to explore promising regions such as the Northeast or the Midlands, avoiding the common mistake of restricting investments solely to their local area.
  • In term of prevailing market conditions, landlords have encountered several tax setbacks in recent years including increased stamp duty rates, the reduced capital gains tax allowance and the phasing out of tax relief on mortgage interest costs, which concluded in April 2021, which directly impacted profit margins.
  • Adding to these burdens, rising interest rates have meant that since March 2022 buy-to-let mortgage rates have nearly doubled, rising from an average of 3.05% for a two-year fixed rate deal to 6.03% today, although it's important to note that lower rates around 4.9% can still be found.
  • Unsurprisingly, these escalating mortgage costs significantly impact the profitability of buy-to-let investments. To illustrate, estate agency Savills published an example of a landlord with a 70% loan-to-value ratio, paying a higher income tax rate enjoyed an average profit of 23% of their rental income last year, even after taxes. However, the latest figures reveal a drastic plunge to a 3.9% this year, thanks to the combined effects of taxation changes and the mounting cost of borrowing.
  • In addition, upcoming legislative changes which will raise the minimum energy rating for buy-to-let properties and particularly Section 21, which would stop landlords from evicting tenants without justifiable reasons.
  • At times that buy-to-let investing has often gained an almost cult-like following, akin to the enthusiasm observed for investing in gold, with proponents staunchly defending its merits.
  • While investing in property is considered by many as low-risk, the reality is that if you are borrowing money to do it then you are using leverage which can  produce both substantial gains and amplified losses. 
  • Mortgage lenders are also cautious of potential property price declines, and are often taking a more cautious stance when underwriting buy-to-let mortgages.

In summary, buy-to-let investing is now less profitable and less attractive particularly  to those investors who have to borrow money to fund their venture.

Concessionary mortgages

In this section of the podcast we talked about concessionary mortgages and who might benefit from them. There is a link in the Resources section below to an article that covers the details in full.


Links referred to in the podcast: