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Is buy-to-let property still worth investing in?

Buy to let

In the last couple of years, a raft of tax hikes and lending reforms have made becoming a landlord far less attractive than it once was – but is investing in property still worthwhile?

In what The Times is now calling ‘Buy to Lexit’, beleaguered landlords may be finding it increasingly difficult to turn a profit on their investment properties – and data from the Council of Mortgage Lenders (CML) suggests some are beginning to abandon the market.

If you’re a landlord, we want to hear how your portfolio has been affected – and whether you ultimately think property remains a strong investment. And if you’re a tenant or homebuyer, do you support the changes in this sector?

Buy-to-let reforms

Here’s a reminder of some of the key reforms targeted at buy-to-let in recent years.

Taxation changes
New stamp duty regulations that came into force in April last year saw landlords hit with a 3% surcharge when buying investment properties. This meant the stamp duty on a £200,000 home increased from £1,500 to a whopping £7,500.

Elsewhere, the tapering of mortgage interest tax relief (which will continue until 2020) and the end of the wear and tear allowance has hit landlords’ bottom line.

Energy efficiency changes
From April next year, any rented properties must have an Energy Performance Certificate with a minimum rating of ‘E’. Landlords who fail to adhere could face fines of up to £5,000.

Mortgage regulations
New mortgage lending regulations for landlords with four or more buy-to-let properties were brought in at the end of September.

The changes mean that lenders will now assess every property in a landlord’s portfolio when deciding whether to offer them further finance, potentially locking some out of further purchases.

Letting fees ban
Earlier this month, the government introduced a draft bill to Parliament to ban letting agents from charging fees to tenants in England. It’s likely the burden of paying referencing and inventory fees will shift to landlords, and some may also struggle with the cap on up-front deposits.

How have landlords reacted?

Data from the CML shows that while landlords aren’t fleeing from the buy-to-let market, more people are settling their loans or selling up.

Meanwhile, separate research from the estate agency group Countrywide has shown a record percentage of buy-to-let purchases are now coming from cash buyers, as finance becomes increasingly difficult to get hold of for those with mortgaged portfolios.

Some landlords have been tempted to set up limited companies so they still get full mortgage interest tax relief. But be warned – those incorporating now face more expensive mortgages and the prospect of additional capital gains tax and stamp duty bills.

Have you sold up?

Whether you’re an ‘accidental’ landlord with one buy-to-let property or a seasoned investor, we want to hear how these reforms have affected you. Perhaps you might have diversified your investments, incorporated, or simply given up on buy-to-let altogether. Tell us your experience.

Comments

I always thought buy-to-let should only have been available to first time buyers as a way to finance a property until such time as they could afford to move into it themselves.

It seems wrong to me that existing property owners be given a helping hand to own further properties when so many struggle to get on the housing ladder.

I still have great difficulty in coming to terms with the injustice of paying someone else’s mortgage which, in turn, only delays first time buyers from saving enough to put down a deposit on a home of their own. It’s high time Banks stopped lending to second home buyers, but with interest rates now set to increase, maybe this will incentivise first time buyers, with a better return on their savings, to get onto the housing ladder.

There is always going to be a need for social housing and many more need to be built. The present system of local authorities paying private landlords unregulated high rents to accommodate social tenants is unsustainable and puts an extra burden on the tax payer.

For people who do not want to purchase their own house – job situation, mobility, or whatever – we need rental properties available, and these need to be “bought” before they can be “let”, so such a business is essential. Equally, if someone has the resources and wish to buy a second home, in a free society I see no reason to bar them from doing so. Who would provide you 2 week holiday home if this were banned?

The housing shortage could be helped by local authorities compulsorily purchasing land at sensible cost – not arbitrarily inflated because of their gift of planning permission (so tough maybe on landowners but their land still has value, but not a windfall profit). Then building to let to those who are unable to save and pay for a mortgage – subsidised if necessary. But as soon as occupants can either buy or rent at commercial rates, then vacate the house to release it to another more needy tenant.

Then move employment to areas where housing is cheaper, more available, to encourage people to move to less populus areas – many of which are far nicer environments than the bigger cities.

I have no qualms with buy to let properties for either residential or holiday occupation that have been bought without requiring a mortgage as there will always be a need to provide for short term business and mobility reasons.

The buy to let market is in dire need of regulating in order to prevent landlords from drawing up contracts with ambivalent legal loopholes that are deliberately aimed to confuse and bewilder unsuspecting tenants with regard to maintenance and other responsibilities. For example, landlords are legally required to maintain and carry out repairs to both the interior and exterior of the property, but who is responsible for cleaning the exterior guttering and blocked downspouts? If tenants fail to pay for someone else to do this when they are unable to do it themselves, the landlord will end up paying for the inevitable repairs that are almost bound to follow which often involves local councils when disputes between landlords and tenants over blocked drainage systems affect neighbouring properties.

In a “free society” Malcolm, it is never quite as cut and dried and “free” as you perceive it to be.

If, as some predict, many people will leave Britain because of Brexit, will this not ease the pressure on housing?

Graham Wilson says:
17 November 2017

In Scotland the whole b to l tax regime is different. Perhaps you could tell us North Britain’s, briefly, what the difference is?

It might change in Scotland in the near future as Holyrood is in consultation about increased tax for the well off to pay for the NHS ( Scotland ) and other social services . Scottish newspapers are full of it.

Patrick Taylor says:
17 November 2017

It should be noted that Which? Financial Services Ltd does provide buy-to-let mortgage services aswell as specialist mortgage services, and the more normal type for home buyers.

This article is interesting in not mentioning this. I believe it indicates the problems of riding two horses as both a charity and a commercial business.

I do have fears that the BTL route is now drawing in the less sophisticated investor. I recently heard of a youngish widow who from the insurance money has bought two BTL flats with a mortgage on each. My fear for her is that the combination of increasing interest rates, jobs leaving the UK, and the loss of foreign buyers from China etc [apparently over 25% of new builds in some London boroughs] will lead to a market correction and she will may be facing a large notional capital loss and facing increased servicing costs.

There is also the spectre of increased regulation which given the Grenfell fire may include up-rating of fire prevention requirements to older blocks of flats and houses. This could be very expensive for flat owners in particular which may lead to a sell-off to avoid paying the costs.

Other than those points I see no problems as over the very long term prices always rise. Excepting of course what occurred in Japan in 1980’s:
http://www.housepricecrash.co.uk/forum/index.php?/topic/209057-tokyo-house-prices-a-cautionary-tale-for-london-and-the-se/