How the property market has changed, and why what worked before won’t work any more

  • Changes to Mortgage Interest Relief via Section 24, which have increased the tax burden for individuals owning buy-to-let property. Holding a property with a mortgage for a higher or nearly higher rate taxpayer has shifted from being a profitable sideline business to a real loss.
  • If mortgage interest was 75%+ of rental income on a property before this change, the new regime means the investor owning this property in their personal name will now begin to make a loss.
  • The Stamp Duty Land Tax (SDLT) surcharge, an additional 3% on top of the existing transaction tax, makes buying more residential properties less attractive. With the surcharge, SDLT would be £9,000 rather than £2,100 on a purchase price of £230,000 (about the average for UK properties).
  • New lending standards from the Prudential Regulation Authority have caused friction on the financing side. For landlords with four or more properties, borrowing is now harder.
  • Additional licensing requirements mean that strong and specialist local and national market knowledge is required by investors. There are more and more stringent local and national regulations. These range from national House in Multiple Occupancy (HMO) licensing to the Selective Licensing of private rental properties in specific geographies.
  • The Tenant Fees Act 2019 has shifted costs from the tenant to investors, meaning that traditional buy-to-let investments have lower returns.
  • Other taxes, such as the Annual Tax on Enveloped Dwellings, add to the cost base and administrative burden of property investment in company structures.
  • Meanwhile, tax reliefs, such as for Build to Rent (scaled development for the purpose of holding long-term to rent out), or Real Estate Investment Trusts (REITs), which are funds focused on holding property, make institutional investment easier and mean it’s harder for smaller investors to compete.

TAKEAWAY TIPS

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Anna Clare Harper

Anna Clare Harper

Anna Clare Harper is a UK Property Investment Strategist, CEO of property asset manager SPI Capital, author and host of property & investment podcast The Return