Buy To Let Tax Tip

BUY TO LETS – A Personal View

Whenever I see a bubble, I know it must burst.  That is what is going on in the buy-to-let market now.  Both the Government and the Bank of England are concerned about it, particularly as it squeezes out 1st time buyers.  The Government tried to dampen it by restricting higher rate interest relief on buy-to-lets.  Many of you have made fabulous money in this market and are to be congratulated on that.

Forgive me for pouring cold water on the party if I paint a possible forward sad scenario.  Interest rates go up – they will.  Given higher interest rates, buy-to-let becomes less profitable, and there is a trickle of sellers.  The housing market stabilises.  Some first time buyers are able to get back into the market.  They do so, exiting the renters market.  Rents fall.  More landlords sell.  The velocity of this revolving circle increases.  House prices fall, interest rates increase, landlords sell, renters exit the market in droves to become first time buyers, rents go down and landlords face troubles.  What do banks do in a troubled market, they foreclose and add to the troubles.  By 2017/18 such a scenario is a possibility.  At some stage, some watered down version of this scenario is a dead certainty, particularly as Government policy is to make life easier for first time buyers and more difficult for landlords.  How much worse would it be if we had a Labour Government.

How do you protect yourself:-

1. Consider selling part of your portfolio before the rout

2. Keep your loan/property value rates low.

3. Try to have an alternative source (to rents) with which to pay the increased interest.

There is a strong and previously alternative view. This is that with large scale immigration, increasing foreign investment in the UK property market (particularly London) and a massive shortfall in new builds that the property shortage leads to ever increasing property prices and a shutting out of 1st time buyers. I acknowledge the intellectual strength of this argument and in the shortlist term & agree with it. But medium/longer term that means an ever increasing property bubble. We all know what happens to bubbles. They do not grow infinitely – they burst!

Regards

Tony Creed