Can you still build wealth with bricks and mortar?

PROPERTY has been a brilliant investment for 30 years but it looks a lot less attractive today as mortgage costs rocket, house prices wobble and the Government cracks down on the buy-to-let market.

Many amateur landlords are now selling up, citing harsh tax rules and increasingly stringent regulations.

Landlords feel demonised for the activities of a small number of rogue operators and scapegoated for a housing crisis that is not their fault. They also fear the Labour Party will get even tougher if it comes to power.

Some are getting out while they can as new investors take on the holiday let market – boosted by Airbnb and the staycation trend.

So is there still money to be made in bricks and mortar?

SELLING UP

Thousands of disillusioned buy-to-let landlords would say no. Only one in five are making a profit, while a similar proportion say they set out without sufficient knowledge and lost thousands as a result.

Every month, 35,000 buy-to-let landlords come off low-cost, fixedrate mortgages to face remortgage rates of more than 6 per cent, according to property tax experts Cornerstone Group International.

Chairman David Hannah said profits have fallen to 2007 levels as higher-rate mortgage tax relief is scrapped and red tape adds costs.

“Some 65,000 rental properties went up for sale in the first three months of 2023, while the number of private rental homes has dropped to a 14-year low,” he said.

This is bad news for tenants as property shortages drive up rents, which have hit a record £1,231 outside London and a staggering £2,567 in the capital, reveals Rightmove data.

This may offer opportunities for first-time buyers, Hannah said, as the average price of a previously rented home is at £190,000. “That is considerably lower than the average.”

Buy-to-let’s glory days are over.

COSTLY

Yet this is not a great time to sell either, with the average landlord in England andwales getting £10,000 less than a year ago, according to Hamptons International. On average, they got £94,800 more than they paid after 11 years of ownership, down from £105,300 last year. That was a record high, though.

This is not pure profit. In contrast to selling your main home, second property sales are subject to capital gains tax at up to 28 per cent, plus, a 3 per cent stamp duty surcharge on the original purchases and plenty of ongoing costs, too.

Worse, one in five made no profit despite all their efforts, while 6 per cent sold at a loss.

As prices slip, landlords looking to sell today may have missed the top of the market, said Hamptons head of research Aneisha Beveridge: “Some investors are consoling themselves with record-breaking rental growth as new homes coming on to the market continue to achieve record rents.”

So should property investors switch to the holiday rentals market instead?

HARD WORK

Specialist holiday letting agents report growing interest from buy-tolet landlords wondering if they can convert their properties, but the truth is the majority are simply not suitable and often have restrictive leases too.

Holiday rentals do offer some advantages over buy-to-let. Perhaps the most tempting is that you can spend time there yourself.

Second homeowners should go for short-term lets, said head of policy and regulation at Sykes Holiday Cottages, Ben Edgar-spier: “This boosts local economies as holiday lets contribute six times more financially than empty second homes.”

As with buy-to-let, owners must comply with strict rules.to qualify as a furnished holiday let for tax purposes, your home must be available for at least 210 days a year and be let commercially for at least 105 days.this excludes your own visits or free or cut-price stays by family and friends.

You must also comply with fire, electricity and gas safety regulations, equip your home to a high standard and take out holiday let insurance. You also need to decide whether to pay council tax or business rates – the rules are complex and changeable.

In Wales, local authorities have been making it harder to claim business rates, while doubling or tripling council tax for second homeowners. More English councils may follow suit.

Holiday rentals can bring in more income than a buy-to-let in peak periods but it can dwindle in winter.

They can also be more demanding, as most visitors move on within a week or two, so the property needs constant upkeep. It’s no holiday.

‘The number of private rental properties has fallen to a 14year low, with 65,000 rental homes on sale’

DREAM ON

England is considering a holiday let registration scheme but Edgar-spier said this could be a positive, by driving up standards and educating “hosts” about their responsibilities.

Scotland has a licensing scheme but this has caused problems. “Licenses can take up to a year to obtain and may be rejected for reasons that are not the property owner’s fault.”

Britons have a lasting love affair with bricks and mortar but today it is being tested as never before.

Yet the second property dream will continue to tempt, and falling prices offer a buying opportunity for those who can afford it.