Millions rethink their investment plans and move away from buy-to-let property
05-01-2017
THE Conservatives are supposed to be the party of low taxation, but their onslaught on buy-to-let landlords has almost killed off property as an investment.
By Harvey Jones
GETTY
Growing numbers of landlords are fleeing as their sums no longer add up
New figures reveal that growing numbers of landlords are fleeing as their sums no longer add up.
Millions of ordinary people who hoped to buy a rental property to underpin their retirement income have been forced to rethink their plans.
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BAD TO LET
Landlords are reeling from former Chancellor George Osborne’s tax crackdown, which began in April last year with a 3 per cent stamp duty surcharge on buy-to-lets and second homes.
Investing in property has historically been seen as ‘safe as houses’, but in recent years it has been outpaced by the stock market
Maike Currie - Fidelity International investment director
This added £7,500 to the cost of buying a £250,000 house, while Osborne also removed the landlord wear-and-tear allowances.
Higher rate tax relief on mortgage interest repayments is being steadily phased out from this month, costing some investors many thousands more every year.
An average of four landlords per estate agency branch sold up in March, up from three in February, according to figures from landlord association ARLA Propertymark.
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In April last year a 3 per cent stamp duty surcharge was placed on buy-to-lets and second homes
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Chief executive David Cox says the ban on letting agent fees will speed up the exodus: “What’s more, two thirds of our members are concerned the Government will introduce even more landlord taxes.”
The latest figures from the Council of Mortgage Lenders show that the number of buy-to-let purchases has halved over the last year, from 142,000 to 70,000.
Some landlords are escaping the tax relief crackdown by investing via a limited company, but this can be expensive for landlords with only a few properties.
To make matters worse, the Prudential Regulation Authority is forcing stricter affordability tests. John Goodall, chief executive buy-to-let specialist at Landbay, says that tighter underwriting criteria will make it harder for landlords to access the finance they need.
FIRST-TIME REVIVAL
The tax crackdown offers some respite for first-time buyers, who now face less competition.
First-time buyer registrations jumped nearly 20 per cent over the last month, and almost 30 per cent in London, according to figures from Haart, as the average first-time buyer purchase price fell 5 per cent.
The age of the average first-time buyer dropped from 32 to 31, but the housing ladder is still a distant dream for many.
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Property investment has been outpaced by the stock market in recent years
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RISING MARKETS
The buy-to-let assault will anger savers, as the average easy access account pays just 0.37 per cent, according to MoneyFacts.co.uk.
However, the glory days of buy-to-let were nearing their end as house price growth begins to flounder.
Over the last year, house prices rose just 3.5 per cent, according to the latest house price index from lender Halifax, while the FTSE 100 grew a whopping 19.7 per cent.
Fidelity International investment director Maike Currie says: “Investing in property has historically been seen as ‘safe as houses’, but in recent years it has been outpaced by the stock market.” Stagnant wage growth will further squeeze property.
She adds: “If the Bank of England pushes up base rates to combat rising inflation, the impact on the property market could be significant.”
Currie says investing in stocks and shares is cheaper and easier: “Property is far less liquid, as it takes time to buy and sell.” You can invest free of income and capital gains tax using your annual £20,000 individual savings account (Isa) allowance.
"The big advantage of investing in property is that you can borrow money to invest via a mortgage, a process investors call gearing.
"Property and shares have both been subject to value swings in the past, so it is important to understand the dangers and spread your risk.