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The Golden Age of Buy To Let is Over

Amateur landlords have fallen out of favour. Buy-to-let properties – once the darling of budding investors looking for stable, long-term returns – have lost their shine through a series of changes to regulations and tax incentives. 

And despite the Tory leadership hopefuls’ silence on the issue, commentators have nevertheless pored over their track records to try and divine what either choice might mean for the buy-to-let industry. 

It’s time to face the reality that whoever reaches the top spot, rental properties are no longer the rock-solid investment opportunity they have been in the past. Not only have the political winds changed, but rising interest rates have created a macroeconomic environment that is not conducive to taking out mortgages against a rental investment. 

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While there was a recent outpouring of grief from landlords sounding the death knell of the buy-to-let model following the Renters Reform Bill, it’s important to remember the changes didn’t happen overnight. There’s been a gradual build up of legislation for more than five years. 

In April 2016 a three percent stamp duty surcharge was introduced for anyone buying a property additional to their main residence – applying to second homes, holiday homes, and crucially, buy-to-lets. 

A year later mortgage tax relief on rental income was withdrawn in phases, essentially halving the tax advantages of owning a buy-to-let investment for higher-rate taxpayers. 

The Renters Reform Bill introduced the latest change: the scrapping of Section 21, or so-called ‘no fault’ evictions, whereby a landlord did not need to provide a reason to kick a tenant out. A positive step in protecting tenants’ rights, but one that also limits landlords’ options for quickly regaining control of their properties.

On the horizon is a rule change that will likely be the most financially painful for landlords. All new tenancies agreed after 2025 must be in a building with a minimum EPC rating of ‘C’. Someone with a portfolio of three buy-to-lets might be facing a bill of £30,000 to retrofit the properties to meet the new environmental standards. 

While many in the property industry have wondered aloud whether Truss or Sunak might possibly lower – or even scrap – stamp duty land tax, the political winds certainly aren’t blowing in that direction. Despite both contenders having promised tax cuts – at different times – these have focused on corporation tax and national insurance. 

In fact, Team Truss’ economic advisor Patrick Minford has argued that immediate tax cuts would likely see interest rates rise to seven percent – and that this is something to be welcomed. I’m not sure many with buy-to-let mortgages would agree. 

 

Making property investment easier is not on the agenda for either candidate. The Conservative Party has a near-institutionalised mission to get more people on the housing ladder. And given the experience of reducing stamp duty during the pandemic, where according to Nationwide house prices have since risen by more than 20 percent in a buying frenzy, hoisting the ladder even further away from hopeful buyers is not high up the agenda. 

Going easy on second-home-owners is also political kryptonite during a cost of living crisis where many are struggling to meet even their basic needs. 

Not only are buy-to-lets becoming politically passé, but a high-inflation, high-interest rate environment will put people off taking on large debts to fund property investment. The era of cheap money is over, making buy-to-let investments distinctly less attractive. Indeed, many in the property industry have argued convincingly that market fundamentals – not government policy – are more important to the sector. 

So it doesn’t look good for buy-to-let landlords, regardless of who wins the race. Thankfully, house prices are still sky-high, so those who have built up significant equity can still capitalise on their investments. And there are plenty more effective routes to get inflation-beating returns. My advice to buy-to-let landlords? Sell now – and fast. 

* Robin Paterson is a partner in UPSTIX *

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    • G W
    • 13 August 2022 07:21 AM

    Interesting and thought provoking article and opinion. For the younger landlords reading this, consider taking the long term view like many of us had to do many years ago as things will change again when governments realise there’s not enough rental stock available and will make changes again to attract landlords again.

    For those like me in my mid 50’s I’m selling up as the article suggests to enjoy the hard work and sacrifice over the years before CGT is increased which will surely happen when government tries to shut flood gates when they realise their mistakes.

    Lastly for the Woke, leftie trolls and Shelter fans, many of us have had years of hardship and sacrifices making annual losses to get to this point….. you moan because you don’t have the work ethic and jealousy is an evil mistress.

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    Great points GW!

    On the instruction "to sell now and fast" bear in mind that UPSTIX is a property investment company and buys property very fast. That is how they operate, so there is a vested interest here.

    They say that they will buy your property in as little as seven days.

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    Excellent point Ellie, you’ve always to look at the source! Hidden agenda!s

     
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    • G W
    • 14 August 2022 07:56 AM

    Fair point in the small print but I think on balance it’s probably correct. Landlords are easy targets politically. Tories know they won’t lose our votes because we don’t want a Labour or Socialist government…… my point is decisions are age dependant. I’d rather spend my hard work than hide it away to avoid inheritance tax. But if I were younger I’d hunker down for long haul

     
    Matthew Payne

    There are very few articles on LT today that aren't advertorials or completely bias to their own business interests. Robins last sentence should have been "Sell now - and fast, sell to Upstix!" Im not sure it's that responsible either as far as thought leadership to be stoking the irrational fires that BTL is dead in the middle of a housing crisis, just to try and make a few quid.

    There are plenty of counters to the arguments above as to why it still works, eg: rents at record high, interest rates still some of the lowest ever, house price inflation etc etc. I dont believe either that MEES will be allowed to cull stock below a C (in 2026 btw, not 2025), and the RRF bill has been dined out on, on a few manifestos now, dont hold your breath on it happening any time soon.

     
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    EPC C hasn't been decided yet. No one knows what EPC C will look like when the algorithm is changed anyway.

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    Agreed Jo, I had an EPC done yesterday on an end 1880s terrace, 'D' just 3 points short of a 'C' , talking to the lady accessor she seemed to think' IF' this does become law it will be set at a 'D' , we need to know more before even considering spending money.

     
    Matthew Payne

    I agree, I think I made this point here earlier in the year, dont do anything until we see what that looks like, what the funding options are, how the tech has improved on gas replacements, prices come down etc. Im not convinved they will back track and say D is now the measure, but instead we will find a lot of Ds and perhaps some Es, miraculously make it to C without too much trouble.

     
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    As Ellie says, the man has an axe to grind. Commentaries elsewhere regarding Ireland. They started their landlord bashing a few years in advance of the UK. The Irish rental market is now a complete basket case. I read that there are actually only 850 houses to rent at the moment in the whole country! Dublin - forget, nothing. The Irish are now starting to emigrate as a result. The Irish Government are now starting to woo landlords back. Obviously too little, too late. As a student of history, I think we'll see this in the UK. Not sure when, but I'm going to hunker down, focus on getting all my EPCs sorted (they should all be at C or better pretty soon). My LTVs are low so interest rate rises are do-able. Interesting times

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    Totally agree.

    I'm selling NOTHING and aged 72 I'm still in it for the long haul, avoiding CGT and not repaying the last £1 million of mortgage debt as that's £1 million less in my estate's value, saving £400k in IHT whilst the interest payable over the next 30 years or so probably won't exceed that.

    I think the Golden Age of Private Renting is over for tenants but not the Golden Age of BTL for Landlords

     
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    Section 21 hasn’t been decided yet either or if it has why are they holding Consultations.
    We are Crowd funding a War if you haven’t noticed, energy Bills going through the roof. Scrap Section 21 or you’ll collapse the shaky economy and the Ration Book will be back.

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    Generation Rent wants to use the Consultation to make things even worse for landlords for example requiring them to pay tenants two months rent if a no-fault ground is used under Section 8.

    You are absolutely right again Michael.

     
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    I agree s21 has not been decided yet but I would be amazed if it didn’t come in, the EPC C could be down graded to a D and that would help. But the article is an interesting one and makes some valid points and observations.

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    I think whether Section 21 goes or not will be determined by whether the next Prime Minister is strongly committed to following traditional Conservative principles - or whether they will follow Socialist principles under pressure from Committees composed of Labour MPs.

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    What are they on about, “lost there shine through a series of changes, regulation’s and tax incentives”
    What TAX INCENTIVES surely it should read TAX DISINCENTIVES
    OK now it all about EPC’s haven’t we got Global warming so we should need less insulation not more. I think too many people are going soft and over weight, should get out more and burn off some of that fat. We don’t have Winters like we used to have in the ‘60’s with snow on the ground for several weeks and Icicles drooping down 60cm long over the windows. Too many people now living off the backs of landlords, carving out easy pickings for themselves, they are top notch professionals the new definition for a leach.

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    Great way to keep warm and to burn off fat is to clean your house/flat.

    Exercise outdoors is OK in the winter for the young, too.

    I don't know why they are not targeting help with gas and electricity bills on the elderly. If they exercise outdoors in the winter they could be subject to hypothermia. There used to be StayWarm where the elderly could have unlimited gas and electricity at a fixed rate. Why aren't the utility companies devising similar schemes now for those aged over 60?

     
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    Ellie, no chance of getting any thing out of Tenants it sounds great but all just theoretical in practice a totally different matter. When was I ever able to avail of any of those costs, never I had the early leaving, the damage caused, the anti- social behaviour when the Council and Police were endlessly involved, visiting & measuring noise etc @ 2.00 am
    but when I tried to remove them the Council wanted me to keep them. It ends the LL pays them to leave quietly, that’s how it works or would any LL go to a Tribunal ?.

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    That is the practical reality, Michael.

    I had a similar experience with anti-social behaviour - and waiting for me to offer them money to leave. Instead, I said that they could stay at a low rent with me in my house. That offer led them to leave immediately without wanting any money!

     
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    Micheal, Ellie, quite agree. However consultations are normally ignored. Successive governments have often looted, and that's what this is. Properties over 40 years can't meet C without horrendous cost,if at all.

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    They are putting very heavy burdens on landlords - most unfair all the time towards us!

     
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