Until recent years, investing in property was overall an attractive way to grow your wealth. Some property owners even chose to invest in property rather than a pension and it was easy to see why.
Over the past three years, the amount of new buy-to-let mortgages has been falling according to UK Finance. In 2020, there were 64,500 new buy-to-let mortgages granted, a decrease of 8,800 on 2018’s figures. This reduction can be put down to tax increases that have made property investment more challenging. On the other hand, the housing market has been performing remarkably well given the turbulence endured over the past two years.
So, we asked the question, has buy-to-let had its day or is it still a good investment?
We start by looking at the new tax increases being stomached by landlords.
Firstly, before you become a landlord you need to buy a property. Landlords must raise a 25% deposit which is a substantial amount of money taking into consideration house price increases over the past 18 months. Average terraced house prices in Hertfordshire have reached £403,953 meaning a deposit of £101,000 would be required to secure a property of this price. That is a huge investment.
To add more of a financial challenge for landlords, they must also pay in 3% stamp duty, a surcharge that was introduced in 2016. That’s almost £25,000 based on the same example that we used earlier.
It has been well documented that property investors feel targeted by the Government and as a result, many have either left the market altogether or reduced their portfolios.
However, it is not all bad news. In 2021 property is still one of the most popular investment types. This can largely be put down to how stable the property market performs. Although there is risk attached to all types of investing, property remains one of the safest investment vehicles. During the uncertain times of the pandemic, many investors have chosen to secure their wealth.
The increase in property prices has also had a knock-on effect in the rental market. Rental prices are up right across the country and landlords are reporting unprecedented levels of demand in the market. This is a welcome boost for landlords resulting in higher occupancy rates.
Investors are also finding that property located outside of the capital in counties such as Hertfordshire are presenting more value. Property outside the capital is of course cheaper to buy which means rental yields are likely to be higher. This is matched by more demand from tenants who are increasingly looking for larger properties with outdoor space and a short commute into the capital. A direct impact of lockdown and the working from home phenomenon.
Landlords can also look to mitigate the tax increases by investing through a limited company. This method of investing is on the increase. Investors can still take advantage of the mortgage interest relief and they also benefit from paying 19% corporation tax instead of the higher income tax rates.
With low mortgage rates and higher rental rates, it is clear to see that buy-to-let is still a sound investment. The market has changed and can no longer be seen as a get rich quick scheme. Instead, investors should be prepared to enter the property market for the long-term where a good income can be made either as a full-time career or as a side project.
If you are looking to move into the property investment market it is vitally important that you do your research first. There are currently lots of opportunities to be successful but it always pays dividends to speak with the experts first.
M A S O N S is one of Hertfordshire’s leading lettings agencies. We offer an award-winning letting experience for landlords through highly flexible and quality property management services covering Hitchin, Letchworth, Fairfield Park, Stotfold, Biggleswade, Stevenage, Welwyn Garden City and Hatfield.