There's no doubt about it, buy-to-let has been one of the best investments of the last 20 years. However, all good things come to an end, and becoming an amateur landlord is simply no longer as attractive as it used to be…
The decline began in 2015, when then Chancellor George Osborne announced a tax crackdown on buy-to-let, claiming he was levelling the playing field with first-time buyers. That was the beginning of the end.
Osborne introduced a three per cent stamp duty surcharge on people buying properties either for investment purposes or as second homes. Somebody buying a £400,000 property to live in now pays £10,000 stamp duty in England, whereas a buy-to-let investor shells out a whopping £22,000.
Osborne also reduced "wear and tear" allowances from a flat rate of 10%, to a new system where landlords can only claim for bills incurred. Finally, and most damagingly, he said it was unfair that wealthy landlords could claim tax relief on up to 40% or 45% of their mortgage interest payments, when homeowners could not.
He started phasing out higher rate tax relief, so from April 2020, landlords will only be able to claim a maximum 20%. For many, the sums no longer add up.
That isn't the only reason why buy-to-let is finally starting to lose its charm. The big attraction was that investors could generate both income (from tenants) and capital growth (from rising house prices).
This was hugely attractive when house prices were booming due to record-low mortgage rates, especially with rents rising steadily because of the shortage of decent properties. However, property market growth has now slowed dramatically and gone into reverse in London, where the sums scarcely add up at all.
Too much effort
As if that wasn't enough, the authorities have launched a regulatory clampdown, increasing red tape on landlords, especially those letting out HMOs—houses in multiple occupations.
Incoming a buy-to-let landlord has always been a bit of a bother. You have to find a property, pay legal and mortgage arrangement fees, repair and maintain the building, find tenants, secure deposits and be on hand to sort out everything from a broken washing machine to a dripping tap.
You can pay a property agent to do this for you, but naturally, their fees will eat into your profits.
There’s another danger
There are still some attractions. The British love affair with bricks and mortar is enduring. Mortgage rates are low.
Yet you have to factor in political risk. Jeremy Corbyn's Labour Party, for example, is planning to give millions of talents the "right to buy" their rented property at a discounted price if it takes power. It has also threatened the UK's 2.6 million landlords with higher taxes.
By all means, go ahead and invest in a buy-to-let. Just make sure you understand the dangers and do your sums carefully.
Keep up with the top stories from Reader's Digest by subscribing to our weekly newsletter