With buy-to-let mortgage rates at near rock bottom levels and the ability to have direct control over your investment on a day-to-day basis, rather than an unknown investment portfolio manager appointed by your pension fund, you would think that there would be a rush to purchase properties in the UK. However, with Brexit just round the corner everyone is a little more circumspect and erring on the side of caution. I even have a few clients that are looking to offload their properties once the Brexit deadline has passed. This is just one of the effects that Brexit seems to be having on the property market.
Recently, landlords have had to settle their tax liabilities. For residential landlords that means forking our extra in personal tax due the restriction to finance costs. We have been discussing this and preparing our clients for a few years now, and where viable have incorporated their business portfolios. Unfortunately, there are a lot of clients who have a modest property portfolio and it’s just not feasible for them to incorporate. These clients need to review their investments and ensure that this is still the best option for them. The same goes for anyone looking to invest in property for the first time.
Holding a property portfolio as part of your long-term investment plan, to take advantage of the increase in capital value, is savvy planning however you do need to ensure that you can afford it in the short term. All indications are that post-Brexit, the interest rates will rise another 0.25%. And after that? You need to ensure that your investment can stand the test.
Make sure you have done the maths. Do your returns add up? Can you afford a repayment mortgage, or do you need to go for an interest only? What rate will you move to once your fixed rate period is up? What will happen if you can’t remortgage? Can you reduce your interest rate by increasing your equity? Would it be viable to offload a property with low returns and use the cash to renegotiate lower interest rates on the rest of the portfolio? Have you factored in maintenance costs and periods of void tenancy? These are all questions you should, and need to be, asking yourself.
You also need to consider if property investment is still the best option for you as your money may be able to perform better elsewhere. Depending on your risk profile, you can get up to 6% return on a Funding Circle savings account, or up to 13.9% on high interest fixed income bonds. Or what about ISA’s? They are tax free after all. Have you considered these alternative options? Investing in buy-to-let means tying up capital in a property that may fall in value. When investing in high-return high-risk stocks and shares you can sell up quickly if you want, however your capital may be at risk.
If you have not done so you need to review your options. Over the next three years residential property landlords tax bills are only going one way. You need to know if property investment is still the best option for you. If it’s not, you need to act now.
Written by Andrew Coney.
Partner and Property Sector Expert
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