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Buy-to-let: is it still worth it?

Last updated: 18th September 2019

If you’ve been asking yourself this question, you’ve come to the right place. We don’t blame you for wondering whether buy-to-let is still worth it – the industry has taken somewhat of a hammering over the past few years, and many are questioning whether the changes have stopped making buy-to-let worth it at all.

So, what do we think?

What people mean when they talk about buy-to-let not being worth it

There has been a series of changes that specifically affect landlords – most of these were made within a relatively short period of time, with some having more media coverage than others. Obviously the press had a field day with the ‘death of buy-to-let’ headlines, but let’s take a look at those changes now and what they mean for landlords:

You can no longer claim your buy-to-let mortgage interest as an expense

This has been a biggie for a lot of landlords. Historically, landlords have been able to get significant tax relief on their rental income. But rules introduced in April 2017 scrapped that, which upped the amount of tax that some landlords had to pay.

Increase in stamp duty

Stamp duty changes for buy-to-let property also ruffled a lot of feathers. If you’re not sure what stamp duty is, you can read about it here. Under the latest rules, anyone buying a second property has to pay an additional 3% on top of the usual stamp duty rates – a major pain in the bum for landlords trying to buy new investment properties, particularly in high cost areas like London.

Mortgage lenders being more careful

Previously, the main thing lenders looked at was whether the amount being loaned as a proportion of the overall value was good. This used to be enough to get you over the line to secure a loan. But that’s changed now, and recently lenders have been looking at things like whether the rent will cover the mortgage costs, and stress testing rises in interest rates to make sure you would weather the storm should this happen. Again, if you’re unfamiliar with buy-to-let mortgages, you can read more here.

But.

Is all this enough to deter landlords away from buy-to-let property? The answer is… maybe, and maybe not.

Sure, the changes could present issues for some, but the majority of them can be overcome with a change in strategy. It might mean investors need to get more tactical – a bit more budgeting and number crunching to make sure the financials absolutely stack up might be needed. You’ll probably want to take tax advice and purchase property in the most tax efficient way that you can. You might be more focused on buying buy-to-let property below market value or change strategy to prioritise capital growth rather than yield – or vice versa. What works for one investor, might not work for another. The main thing to remember is that if planned right, buy-to-let will still work very nicely for you.

Ask yourself – have the fundamentals that make buy-to-let worthwhile changed? Inflation? Leverage? Nothing has happened to those that changes anything. It just means that – like anything – you’ll have to factor in the changes and price these into your investments. This is what any sensible investor should be doing anyway. Forget the short term, the long term is what you want to be looking at.

The evidence speaks for itself – if buy-to-let had stopped being worthwhile, we’d have had a mass exodus of landlords and the market would be flooded with property. This hasn’t happened. Nor have property prices come down. Buy-to-let is still more popular than ever for those who are serious about investing. As with any business in any landscape, we change and adapt.

Investment isn’t supposed to be easy, there will always be challenges and obstacles, it’s how we deal with them that matters..

For more on this, why not look at our video on the death of buy-to-let, or find out how property will make you rich in the long term.

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