Changes in the tax regime and concerns over the property market have affected landlords and property investors. Is buy-to-let still a sound choice?
The past decade or so has been a tricky time for investors, or those simply looking to put a little bit aside for their later years. Interest rates at record lows, a struggling pound and pension schemes lurching from one high-profile disaster to the next have led people to wonder just what they can do to make their money work harder.
Through it all, the property market has been something of a beacon of light, remaining buoyant throughout the global recession, Brexit and pretty much anything else the world could throw at it. Meanwhile, with first time buyers finding it increasingly difficult to attain that first rung on the property ladder, Collier Row letting agents have seen a steady and sustained increase in demand for rental properties.
It all combined to prove that there is proof in the old adage our parents and grandparents told us – there is no better investment than bricks and mortar. After all, what could be better than an asset that is appreciating in value year on year, while also delivering a solid rental yield?
But now, there is growing concern that increases in tax and drops in prices mean the bottom could fall out of even this market. Is the golden age of buy to let coming to an end, or is this just another wave that the market will ride, in the same way it has overcome previous challenges?
What’s happening with prices?
To address the concerns one at a time, the UK property market undeniably slowed during 2017, and experts predict they will fall further in 2018. This has been most noticeable in London, and was probably inevitable given the outrageous level that property prices had started to reach.
This is not necessarily bad news for investors. A price drop is typically followed by a boom, so watch and wait in 2018, and you could pick up a bargain.
Government schemes such as Help to Buy could reduce demand in the rental sector, but the impact is unlikely to be significant. Most surveys indicate that the private rental sector will continue to grow over the coming years, so demand is unlikely to be an issue.
The biggest concern for most people is the tax situation. When the government increased the stamp duty payable on second properties, the media screamed that this would destroy the private rental market. The facts are that stamp duty is payable at the following rates:
Up to £125,000 – 3%
£125,001 to £250,000 – 5%
£250,001 to £925,000 – 8%
£925,001 to £1.5 million – 13%
Over £1.5 million – 15%
So if you were to buy a modern, two bedroom apartment in Collier Row for £275,000 you would need to pay stamp duty of £3,750 + £6,250 + £2,000 = £12,000.
Does that mean buy to let is no longer viable? Of course not, it just means that you need to factor the cost of stamp duty into your financial projections and your purchase negotiations.
When it comes down to it, buy to let still offers exactly the same benefits it ever has, and it will continue to do so.