Buy-to-let fights back
RENTAL PROPERTY INVESTMENT
BUY-TO-LET was one of the nation’s favourite investments but it fell out of favour following a Treasury tax crackdown aimed at levelling the playing field with first-time buyers. Many smaller investors sold up as the tax and regulatory burden grew, yet house prices have continued to soar, up 10.1 per cent in 2021, according to Nationwide, the best year since 2006.
The average home hit a record high of £254,822, up nearly £24,000 over the year, netting plenty of capital growth for those who lasted the course. Landlords are thought to have purchased £18billion worth of properties last year, according to UK Finance, up 83 per cent on pandemicstricken 2020.
Yet buy-to-let is hard work and expensive to get started, as you have to find a property, slap down a 25 per cent deposit and pay stamp duty and mortgage arrangement fees.then you need to do it up, find tenants, collect rents, chase arrears, fund repairs and budget for any void period when your property lies empty.
You also need to pay tax on your rental income and capital gains tax on any profit when you sell.
Buy-to-let landlords have another worry, one that has not been an issue since the scheme took off in the mid-1990s. Inflation is back and this could push up interest and mortgage rates, said Swen
Nicolaus, chief capital officer at Molo:
“It will lead to higher mortgages for any landlord who is not in a fixed rate, and make affordability harder for purchasers.”
The Government’s environmental push may force landlords to plough yet more money into their properties to hit energy efficiency targets. He added: “While the Government may help homeowners improve their own homes, landlords have to foot the bill for upgrades themselves.” Nicolaus said landlords have withstood the three per cent stamp duty tax charge and the loss of higher-rate tax relief, and the sector remains resilient: “Strong house price growth forecasts will continue to lure investors with an eye on the long term.”
Yet “landlord” has become a dirty word in some quarters, with threequarters saying they feel “unfairly portrayed as this generation’s financial bogeyman”, according to research from lender Mortgages for Business.
Managing director Gavin Richardson said the stereotype is unfair: “The majority of landlords pay 40 per cent
tax on their rental income, plus stamp duty, which means the Government is profiting hugely.”
They are not to blame for the property shortage, which has left first-time buyers needing to save 113 per cent of their salary to put down the average home deposit of 20 per cent.
He added that without landlords, people would have nowhere to live: “They are actually bailing the Government out.”
A third of landlords are planning to buy at least one property in the next 12 months, said Shawbrook Bank sales director Emma Cox: “Despite the pandemic, house prices have continued to soar, boosting confidence.”
The average buy-to-let property value was £319,805 last year, producing £1,360 a month in rent – or £16,320 a year.that’s a yield of 5.1 per cent, far higher than savers get on cash. London is the favoured area for buyers, followed by the Southeast, Northwest, East of England, then West Midlands.
Buy-to-let is back. If it ever went away.