The buy-to-let market has been seriously squeezed in the past few years by extra government regulations. It’s no wonder more than 500,000 landlords ditched their rental properties in the past year – with many turning to property crowdfunding as a way of taking the hassle out of investing.
In fact, most buy-to-let investors enjoy the government’s policies as much as an ice-cold bath. But does 2018 spell more disaster? Here are the main policies which we think will mean another bad year for buy-to-let landlords.
Landlords already face extra surcharges when buying a property, but they now also face higher taxes if they can’t find a tenant.
In changes revealed by the chancellor in November 2017, councils and local authorities will have the power to charge a 100 per cent premium on empty second homes. This only includes properties that have been unoccupied and unfurnished for at least two years – so some landlords may find themselves desperately hunting for tenants and furniture.
The other main change ushered in by the government recently was to increase the capital gains tax property investors pay when they sell-up, by removing tax relief.
In the past, investors used to receive tax relief on their capital gains from a property sale. For example, if you bought a buy-to-let property ten years ago for £200,000 and sold it today for £300,000, you would pay just over £7,100 in capital gains tax.
But under the new rules which see the tax relief being eroded, a landlord who buys the same £200,000 buy-to-let property today and sells it in ten years’ time for the same price of £300,000, will pay around £17,000 – that’s £10,000 more capital gains tax than previously. Ouch.
Another of the government’s recent announcements was removing stamp duty on the first £300,000 for first-time buyers. This is fine for young people who have already saved up their deposit, but means more woe for buy-to-let investors.
Take the same £300,000 house. Whereas the first-time buyer pays exactly that amount, the buy-to-let investor actually pays £314,000 – which includes stamp duty plus a three per cent ‘second home surcharge’.
Plus, in the long run, the stamp duty changes could even push up prices as first-time buyers look to borrow more and buy more expensively.
So how does this all add up? It looks like the buy-to-let market will still be the poor friend of the Chancellor for some time – and viable alternatives like property crowdfunding will continue looking attractive.
Of course, many of the government’s announcements affect UOWN’s properties too – and crowdfund investors still have to pay their share of stamp duty, legal fees as well as repairs. So why are buy-to-let investors making the switch to property crowdfunding?
We think one of the UOWNers, Tracey, says it best: “I have done buy-to-let before, but for me investing in properties like that now would cause a problem, in terms of dealing with tenants and looking after the property.
“I was really interested property crowdfunding as a way of investing without the responsibilities of buy-to-let. I don’t have to worry about tenants, maintenance, insurance, it’s all done for me. All I need to worry about is the income that’s being generated.”
Well said, Tracey! If you want to hear more from Tracey, watch the conversation here.
If you’re thinking of making the buy-to-let switch, take a look at our proven performer properties.