The attraction of buy-to-let is starting to wane as far as some people are concerned due to a series of recent tax and regulatory changes, new research shows.
The introduction of the 3% stamp duty surcharge, scrapping of the ‘wear and tear’ allowance and the phasing out of mortgage interest relief are among just some of the issues deterring buy-to-let investors at the moment.
While there are still high rental yields to be achieved in some parts of the country, particularly in the north, other areas are seeing ultra-low returns by historical standards.
London, for instance, is one of the worst areas across the UK for buy-to-let, with some investors achieving a rental return of less than 3%, which may explain why more than a third of investors in the capital no longer view property as a good investment, according to a new survey of over 1,000 UK investors and 500 High Net Worth Individuals commissioned by Rathbone Investment Management.
Recent changes to the tax treatment of buy-to-let investments introduced by the government over the past few years, as well as the introduction of new regulations by the Prudential Regulation Authority affecting portfolio landlords, have led to many investors now re-evaluating the cost-effectiveness of property as an investment.
In comparison, those investors with over £100,000 of investible assets are much less bearish about property – just one in 10 don’t view it as a good investment.
Interestingly, nearly half of the HNW London investors surveyed currently own buy-to-let properties; however, just 17% planned to increase their portfolio.
Some 37% of the HNW investors surveyed had accumulated their wealth through property, whilst 27% currently had investments in private real estate, 17% in commercial real estate and 12% in land.
Robert Hughes-Penney, investment director at Rathbones, said: “Recent changes to the tax and regulatory treatment of buy-to-let has caused investors to take a step back and assess the viability of these investments.
“Whilst it’s understandable that property, and in particular residential property, has been a popular investment in the past, it’s now making less and less sense. Not only are the returns now being impacted by an increased rate of tax, but they can also prove high risk investments due to a lack of diversification.
“Property investments require a large amount of capital to be held in one single asset and landlords will often hold a number of properties within one region.
“Investors who are looking to invest in property, should make sure to assess their risk appetite, look at all alternative options and make sure this property is held within a well-diversified portfolio of investments.”