Money blog: National insurance rumour prompting landlords to act | Money News

Every Friday, we take an overview of the mortgage market with industry experts and round up the best rates with Moneyfactscompare.co.uk. 

Concerns over the upcoming budget has buyers, sellers and landlords acting more cautiously when it comes to making moves in the property market, experts have told the Money blog.

For landlords, the concern is a rumour that the chancellor could levy national insurance contributions on pre-mortgage profits. 

At the moment, money made through rent is not considered “earned” income like salary or self-employment earnings, meaning it is exempt from NICs. 

But if this were to change, landlords would have to pay much more in tax.

In anticipation of the rumoured change, some landlords have set up limited companies for their buy-to-let portfolio to reduce their tax bill, according to Moneyfacts. 

Rachel Springall, finance expert at Moneyfacts, says: “Unlike other reforms that gradually hit landlords, this could become a significant move to lead more landlords into setting up a limited company for their buy-to-let property portfolio.

“This has been a growing trend over recent years due to reductions in mortgage interest tax relief, which was gradually phased out between 2017 and April 2020.” 

The potential move has been reflected in a boost in the number of buy-to-let mortgages available to limited companies. 

There are now 776 two-year and 954 five-year fixed options available to landlords, a combined total of 1,730 options – up from 841 in October 2023, Moneyfacts found. 

The cost of a deal has also fallen over the past two years, with the average two-year fixed rate now 5.04%, down from 6.53% in October 2023. Year on year, the two-year rate is down from 5.54%.

“The growth in product choice should be welcomed in a market that is consistently facing external pressures, but the rumour mill churn in the run-up to the budget could be causing concern,” Springall adds. 

“Wider economic pressures continue to impact the rental market, so there is a careful balancing act for landlords to both meet their desired profit margin, while also ensuring they charge their tenants fairly. Ultimately, keeping valuable tenants and keeping properties occupied will be essential in the months ahead.”

Here’s a look at the best buy-to-let rates on the market… 

The lowest buy-to-let rates may carry both a flat product fee and an arrangement fee that is based on a percentage of the mortgage advance, so a best buy package may be more suitable if you are looking to save on the upfront cost of any deal. 

Here’s a round-up of the top ones on offer… 

First-time buyers seeing prices rise more steeply

House prices for first-time buyers are rising more steeply than other sections of the market – with an average first home now costing £229,000, Zoopla has found. 

This represents a 2.4% increase in the past year – though it’s much bigger in some parts of the country. 

In the North East, prices for first-time buyers have increased by an average of 10.2% annually, according to the analysis.

In London, prices have fallen by 2.4%. Still, getting on the property ladder there costs around £420,600. 

Richard Donnell, executive director at Zoopla, says affordability challenges are “acting as a drag on house price growth across southern England”.

“The variation in affordability explains why first-time buyers across England are looking to buy three-bed houses, while in London, one and two-bed flats remain the primary target for those buying their first home,” he says.