For the past two decades, buy-to-let has swept all before it. Investors have been royally rewarded withcapital growth from rising house prices and regular income from tenants rent. Buy-to-let has ruled the roostand hundreds of thousands have seizedthe opportunity to set themselves up as amateur landlords.
The British love bricks and mortar more than they love the Queen, so you can see the appeal. But now buy-to-lets glorious reign is set to come to an end, cruelly slainby scheming Chancellor George Osborne.
From 1 April, the Chancellor is slapping a 3% surcharge on investors buying rental properties or second homes. Stamp duty on a 250,000 buy-to-letwill quadruplefrom 2,500 to 10,000, while on a 400,000 propertyit will more than double from 10,000 to 22,000. Therehas been a surge of investors looking to beat this deadline, but unless your transaction is nicely underway youllmiss it, as you cantguarantee that youll find a property, arrange a mortgage and complete in time.
Death by tax cuts
Higher stamp dutyis only the start of the pain forbuy-to-let. From April next year, the Chancellor will beginslashing away at higher rate tax relief on mortgage interest for investors, a four-year process that will eventually cut itto just 20%. Hes also snipping away atwear-and-tear allowances. The Chancellor says hes doing this to help first-time buyers compete with equity-rich investors. Property investors call it a naked tax grab. Either way, the result is the same: buy-to-let has been dethroned.
The current rush of last-minute investors is likely to hitan abrupt halt 1 April. This could poison the widerproperty market, given that investors made up 15% of purchases last year. One in sevenexisting landlords now plan tosell at least some of their properties as a result, according to investment platform Rplan.co.uk. Finally, first-time buyers may have something to celebrate.
Let it alone
Ivebeen tempted to invest in buy-to-let, but was always deterred by the effort of finding a property and the related expenses of stamp duty, conveyancing,estate agency fees and mortgage arrangement charges. Then theres the cost and bother of doing up the property, paying for maintenance and repairs, and advertising fortenants (and replacing or ejectingthem as required). Compare that to how easy it is to buy a stock or fund: you can trade in seconds for a 10 feeplus 0.5% stamp duty, and well, thatsit.
Property isnt just overtaxed, it also looks overvalued to me. In London, prices leapt another 14% in the last year, according to latest Land Registry figures. Affordability is a growingproblem across the UK, even with mortgage rates falling below 1%. By contrast, the FTSE 100 has fallen 15% since its highs of last spring, and is starting to look attractivelyvalued again. Better still, you can invest free of taxusing your stocks and shares Isaallowance, and without any ofthe hassle involved inbecoming a landlord.
Buy-to-let is dead. Long live the stock market!
Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.