Is Buy To Let Investing Dead?
With many publicized rumours of changes that affect finance, tax and legislation, many have suggested that buy to let investing is dead.
Buy to let landlords are facing a lot more challenges than in previous years.
Read on to see if this once traditional property investment really is dead.
In April 2016, the first major change to the buy to let market was the introduction of the 3% Stamp Duty Land Tax. Home buyers unless exempt (first time buyers for example) will be charged a stamp duty tax on any property they buy which is over £125,000, this also applies if you are buying subsequent properties.
Bringing in the stamp duty tax has had a financial impact on those who wish to buy a property to let it out as this is an additional cost that has to be factored into the investor’s budget and many have predicted as one of the main reasons the buy to let market may be dead.
Withdrawal of Tax Relief
Not long after the introduction of the stamp duty tax, came the announcement from the Government that by 2020 they will have withdrawn buy to let tax relief.
In a bid to try and win votes the government wanted to offer houses for the many rather than the few, and decided to make it harder for those who want to buy to let with the stamp tax duty and tax relief withdrawal.
The other reason for this is that they view buy to let property as a risk to the economy which the Bank of England also concurred with.
The withdrawal of relief has been predicted to affect around 20% of existing landlords and as a result rent may need to be increased.
This is a risk as tenants may then give notice, and it may be hard to find another. The property may sit empty and the landlord then chooses to sell it, which could contribute to the death of the buy to let market.
To throw another challenge at the buy to let landlord the Prudential Regulation Authority announced in September 2017 that they will be enforcing stricter restrictions on mortgage lending to buy to let landlords.
Many are not able to buy property outright so will rely on a mortgage to finance their investment. With it being harder to obtain, buy to let investments are likely to decrease especially from those who are described as ‘hobby’ landlords.
Buy to let legislation is becoming more complex.
Many landlords will now need to see if they need to obtain a specific landlord or property licence such as those who wish to have a HMO (house with multiple occupancy) and these changes in licensing are now forcing landlords to look at energy efficiency and building trade to ensure houses are up to standard.
It is now advisable to seek the advice of a lettings agent who can advise you if you comply with the required legislation.
Many have argued that these changes will in fact add stability to the buy to let market.
The Bank of Mum and Dad
With changes to the economy and property market, many working professionals are now unable to afford the deposit for a mortgage.
Some are having to rely on ‘The Bank of Mum and Dad’, so much so banks are now offering mortgages to cater to this. Barclays offer a Borrower Sole Proprietor Mortgage with many other lenders following suit.
Occupiers are less likely to rent the property out and instead use this as a residential property for themselves.
Many others are instead choosing to rent and this is good news for the buy to let market.
We’ve talked about the challenges buy to let landlords are now facing, but there is one factor that may outweigh them and show that buy to let is not dead; the demand for rental properties.
Mortgages are becoming harder to obtain, and many cannot afford them. Working professionals and young families are looking to rent which means the demand for rental properties is still high.
There are not enough houses being built according to the majority and as many cannot afford their own home, the demand for rental properties is far from decreasing which is a positive sign the buy to let market is not dead.
The Bank of England have confirmed the buy to let market has slowed with the above contributing factors being held responsible, but it has not halted.
Buy to Let investment via a limited company to the lower the tax bill is becoming a very popular avenue that many ‘vanilla’ buy to let investors are now taking, and with the stable demand it seems the buy to let market being dead many have been predicted a bit too hastily.
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We would advise you to seek independent financial advice before investing. Capital at risk when investing in property.