Is buy-to-let in the capital still a worthwhile investment?

Alasdair Carpenter
Alasdair Carpenter

Firstly, there is little doubt that residential buy-to-let investment in the UK is not as attractive as it once was.

The vast majority of landlords own at least one other property, therefore they instantly incur an additional 3% stamp duty levy. This at a time when the equity required for a buy-to-let mortgage is typically 25-35%. So every extra penny of additional tax becomes a very bitter pill to swallow, especially in the capital where property prices are considerably higher than the rest of the UK.

Another objectionable change to rental income tax (as far as buy-to-let landlords are concerned) was introduced in April this year. Thus increasing the amount of tax payable on rental income for those who had previously claimed tax relief on mortgage interest.

The changes in taxation are nationwide directives but as if that were not enough for private landlords to bear, many local authorities are now readily introducing the requirement for a license before you can let your property.

So, without doubt, the investment environment for residential buy-to-let landlords has become tougher. If you were to look at this in terms of a simplistic balance sheet, the costs have increased and the income in most instances has not. Put this against the backdrop of stagnating prices and it begins to look like a more and more unattractive proposition.

However, let’s get some perspective on this. Banks are offering virtually nothing to savers who have cash on deposit. Most people view tangible assets, such as property, to be less risky than financial investments such as stocks and shares. Certainly for those who are not looking for a short-term gain, buy-to-let, still seems like a viable option.

If the current conditions deter prospective landlords, it will mean rental income will increase in the future, when less private rental property is available to tenants looking for accommodation, thus potentially increasing rental yields. So it’s not all doom and gloom, there is light at the end of the tunnel for those who are happy to take a slightly longer term outlook.

 

Alasdair Carpenter
Managing Director
www.lourdes-estates.com
Lourdes Estate Agents