Is Buy-to-Let still a viable Investment?

The British public loves bricks and mortar. We aspire to own our own homes and it is commonly believed that a buy–to-let investment is a “no brainer”. However, recently the Government seem intent on reducing the numbers of people getting involved in becoming a landlord and have announced some big tax changes.

Stamp Duty

Purchasing a rental property became a lot more expensive since 1st April 2016. From now on, buying a rental property will cost 3% more in stamp duty land tax which could put off some inexperienced investors. But should it? In our experience, landlords buy property for the long term and not to make a quick buck. Therefore if a 3% extra charge on an asset that you intend holding for the rest of your life puts you off, that tells you that perhaps the investment shouldn’t have been bought in the first place.

Wear and Tear Allowance

From 6th April 2016, landlords of furnished properties will no longer be able to claim their 10% wear and tear allowance. There has been much upset about this change but how will it work in reality? Under the old system, you simply claimed the 10% wear and tear allowance (which gave you a 10% cost to offset against your rental income), rather than what you actually spent on maintaining the property. From now on you claim what you spend – to me this sounds fair. Therefore, if you’re a good landlord and you maintain your properties appropriately for your tenant, this rule change could even work in your favour as you will be able to claim for all costs that you spend rather than having an arbitrary 10% cap on your expenses.

Buy to let tax relief

Up until April 2017, landlords can offset the cost of the interest payments on their mortgage and have actually been able to do this for years. The Government have decided that for those earning above the basic rate tax threshold, there should be a reduction in the tax saving this gives and so are reducing this perk over a 4 year period. Some argue that landlords have had it so good over the last few years that it was inevitable that this benefit was going to be removed. Others are up in arms about this change. Interestingly, the average debt on a rental property is only 30% of the property’s value meaning that buy-to-let is actually an investment that mainly cash rich people invest into. What will this mean long term though? Research conducted by Paragon Mortgages has highlighted that more than 75% of landlords intend putting up their rent to offset this tax liability. So paradoxically, it actually looks like the renter will be worse off here, not the landlord.

So is it all bad news?

Well, no. There are certain ways of owning rental property which means that you won’t be affected by many of the rule changes anyway, such as Holiday Lets or owning property through a Limited Company. If you want to buy a buy-to-let, we can help you think through the various options.

But is it all rosy?

Being a landlord does come with its own pitfalls. There are tenants to deal with, properties that have to be managed and tax returns that need completing. That’s without even thinking about mortgages, interest rates increasing and rent not being paid. Being a landlord isn’t a walk in the park and you certainly have to put in the hours to ensure that your portfolio works. However, provided that you have the time and inclination to get your hands dirty it can be a solid investment. Many IFA’s don’t encourage their clients to invest into rental property and the cynic in me would say that this is because they can’t earn fees on any money invested into property. As we focus firmly on giving impartial financial advice, we don’t mind where you invest your money, as long as it makes sound financial sense for you.

Investing into rental property is a long term investment and provided that it is part of a diverse investment portfolio, it can still very much be a viable investment.