The Government Buy To Let Mortgage Trap!
So over the last couple of months we have seen a huge hit to the buy to let market.
There has been numerous reasons for this including the European guidelines enforcing their own rules on the UK, the Government not being able to build enough houses (although promising the world), increases in regulation on affordability calculations, increased stamp duty and the list could go on.
All these events though are going to have a huge knock on effect to the market a few years down the line and here's the reason why. With heightened affordability calculations being introduced in to the buy to let market we have now already seen people from two years ago are unable to re-mortgage to new deals which is forcing people to stay on high rates. These affordability assessments have continued to increase so this situation is going to be a lot worse for buy to let mortgage holders again in two years time when looking for a new deal. This will then force landlords to pay more on their mortgages, at the same time as this landlords will no longer be able to offset their mortgage interest against their rental returns. So we then have a situation where buy to let mortgage holders will be paying a lot more in interest (because they can not re-mortgage), paying a lot more in taxes (because they can not offset interest) and hence they will be trapped in a sticky situation. This will then force landlords to increase rents across the country to cover their losses in interest and in taxes to make up for the shortfalls they are now facing due to government policy and bank policy. This then in turn reduces the chances of people renting, to get on to the property market because they have less disposable income, it also reduces the economy due to the fact the majority of people that rent a property will have less money to spend, so essentially in turn shrinking the UK economy.
This hasn't even factored in an increase in interest rates yet. I feel like this trap the Government has set up will backfire massively over the next 5 years and they will have to re-think their strategy. The problem at the minute is simple, there are not enough houses. So instead of making each council an absolute nightmare process to get development planning, re-look at your processes and work with developers to get these properties built. Don't fight against the general public trying to create more homes. Have a look at footprints of properties and potentially build them in a more efficient way (such as townhouses), they have a smaller footprint and build upwards instead of using land (essentially fitting 8 houses where before you could only have 6). The problem is a lot bigger than buy to let owners in the UK and I feel this has been used as a scape goat for lazy politicians to raise some funds. If they needed to raise funds I know the first place I would be looking at (Google, Facebook, Vodafone). Not the general public trying to make an honest living.
Would be good to hear thoughts on this situation and other peoples opinion.
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