Time to call time on traditional buy-to-let?



To buy or not to buy? That is now the burning question on many would-be landlords' lips including a police officer from Somerset. The reason - as all those considering this sort of investment will be painfully aware - is that significant changes are afoot.

From April, anyone buying a second home or a buy-to-let property will have to stump up an extra 3% of the property price as the stamp duty surcharge kicks in. For landlords with a mortgage, there will be gradual cuts in mortgage interest tax relief from 2017, down to the basic rate of 20% by 2020.

So with this tax double-whammy, will it still be worth the time, effort and potential hassle? Can buy-to-let still make a decent rental income to top up your police pension, or will you struggle to make ends meet?

Property Partner has carried out a study into more than 100 of the UK's largest towns and cities, to see what the impact will be over the next few years. Our findings were startling.

The data showed that if interest rates rise by only a modest 2.5%, landlords will be forced into debt in seven out of ten UK towns and cities by 2020.

In fact, the average buy-to-let property would be making an annual loss of £325. And fewer than one in five (19%) towns and cities will see landlords make a net rental profit of more than £100 a month. Many buy-to-let investors will then be relying solely on capital growth.

Phil Ward, a police officer living from Somerset, faces this worrying scenario. Phil owns mortgaged buy-to-let properties in the coastal resort of Burnham-on-Sea and in South Wales. To date he's enjoyed strong returns on his portfolio, but one of his Burnham buy-to-lets, financed with a 90% LTV mortgage, will be loss-making once the changes come in.

"I crunched the numbers as soon as the changes were announced", he says. "Currently the rent only just covers the mortgage, not including maintenance costs. I'll have to hike the rent significantly, but if the tenants object, I'll be forced to sell up."

So what are the alternatives if you still want to invest in bricks and mortar without the hassle, expense and tax implications of conventional buy-to-let? One option that is attracting increasing attention is online property crowdfunding.

Property crowdfunding platforms like Property Partner will be unaffected by changes to mortgage interest tax relief, because each property investment they offer is held in a limited company and therefore able to fully offset interest against rental income. By bulk-buying large residential blocks, the platform will also avoid paying the stamp duty surcharge on its property investments.

The company has launched a buy-to-let calculator www.propertypartner.co/buytoletcalculator, which shows landlords the full impact of the tax changes and who will be hit. Of course, those lucky enough to own their property outright without a mortgage will remain unaffected by the loss of tax relief. However these tax changes may mark a tipping point. Landlords with mortgages to pay will lose out - for many of them the days of making a steady income from traditional buy-to-let are numbered.

Article submitted By: Rob Weaver, Director of Investment at the property crowdfunding platform Property Partner

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