Is Buy to Let really dead?
The case for Buy to Let for some people was very appealing. It offered the potential for income as well as capital growth in an investment that really was interpreted by some as safe as houses.
It was so popular it was pricing first time buyers out – which caused the government to clamp down.
But have they really made it impossible to make money from Buy to Let?
Why Buy to Let used to be so popular
Buy to Let could mean better returns than annuities – making it very attractive for making the most of a pension pot – and more stability than equity investments.
It also made it possible to borrow money to fund the investment; a tactic usually reserved for high flying financiers.
All you needed was a deposit for a Buy to Let mortgage. The rent your property earned ideally would pay the mortgage and you were able to claim relief on the mortgage interest. With a little forward planning, it may have been possible to enjoy a reasonable level of income and with a repayment mortgage the house would be yours in typically 25 years providing all payments were made in full. It would have paid for itself – or rather your tenants would.
It was popular. At Continuum, we have helped many people arrange the mortgage they need to become landlords. Five years ago, as many as 15% of all buyers were investors taking out buy to let mortgages.
The problem was that first-time buyers were being priced out of the market. The government needed to act, and in 2015 Chancellor George Osborne axed tax reliefs, and made stamp duty punitive on investment property.
What happened?
Many landlords saw their profits slashed, over the past three years as tax changes were phased in and stamp duty surcharge on second homes doubled. Things will be getting more difficult still with the Tenant Fees Bill coming into force this month.
The appeal of Buy to Let is evaporating. A recent Residential Landlords Association study found that a quarter of private landlords are looking to sell at least one property over the next year.
Buy to let can still be profitable
However, Buy to Let can still be profitable – if you buy in the right location.
In the past many investors were attracted to London, with a large and wealthy transient population and apparently endless house price appreciation. Now, the combination of a stamp duty surcharge on second homes, high prices, and a clampdown on landlord tax relief are pushing landlords away from the capital and commuter belt.
Just one in four London based landlords purchased a Buy to Let outside the capital in 2010, according to the research from estate agents Hamptons International.
But since then the number of London based landlords buying in London itself has dropped by 34%. Instead they seem to be buying new properties in the Midlands and North.
Lower entry costs, higher yields and steady demand outside of London mean investors are looking outside the traditional Buy to Let hotspots.
It’s easy to see why when you look at the costs. A landlord buying in London during the past 12 months faced a £24,600 stamp duty bill on average, compared to £5,330 for an investor buying outside the capital. Even more important, lower house prices outside London can mean higher returns on investment. In Nottingham, some areas average yields of 11.99%, while in Chelsea high property prices make returns of 2.4% the norm.
The final factor is that house prices in the most desirable parts of London are falling, impacting on potential capital growth.
Can you still make money from property?
It looks as though it is still possible to make money from property – but the new financial realities make it a great deal more difficult than it used to be.
At Continuum, there are several ways that we can help.
Firstly, we can help you secure the most attractive mortgage for your Buy to Let plans. As mortgage experts we can source deals that are not advertised – and find funding if you need to look at refurbishment before letting out.
Secondly, we can help you look at alternative structures for Buy to Let investment.
Whatever your property plans, we are ready to help you put them into action. To find out more about what we can do for you, simply call us.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
The Financial Conduct Authority does not regulate some aspects of Buy to let mortgages.
The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested.
The value of a property is generally a matter of opinion and the true value may not be recognised until the property is sold. It may be difficult to sell or realise the value of the property in adverse market conditions.
Borrowers will still be responsible for maintaining the payment of any mortgage in the event that the property is not rented out and therefore may wish to make suitable provision for this event.
We suggest that you seek legal advice and advice on tax issues before purchasing a property to let.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
Book a free initial consultation
Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.
References: