Is Buy-to-Let Truly Dead in the UK?

Posted On Thursday, 02 July 2020 23:04

Up until the 2016/17 tax year, landlords were free to deduct mortgage interest and other allowable costs from their rental home, with this type of tax-incentive helping them to save considerable sums of money.

Significant changes were announced that year, however, as of April 6th this year, the tax relief for finance costs will be restricted to the basic rate of income tax (currently fixed at 20%). 

This was a significant blow to buy-to-let landlords, while it has caused many to surmise that the once prosperous buy-to-let market was increasingly moribund. But is this the case, and what does the future really look like for investors in 2020?

Appraising the Real State of  Play in the Marketplace

Of course, the Covid-19 pandemic has also created a significant challenge for potential investors, with the Nationwide house price index for May showing that prices fell by 1.7%  from the previous month.

This represented the largest decline for 11 years, and while some may argue that this lowers the price point for entry into the buy-to-let market, it’s also impacting on demand and the rent that landlords can realistically charge to tenants.

In general terms, there’s also no finite idea relating to when the economy is likely to achieve previous levels of growth, with fears of localised spikes and the socio-economic cost of quantitative easing measures continuing to drag on efforts to restore prosperity.

However, experts within the buy-to-let market and the property market as a whole remain bullish about the medium and long-term outlook, while also reaffirming that the former continues to remain resilient and capable of delivering reliable returns over time.

This is despite the rollback of tax breaks for private landlords, and the introduction of a 3% stamp duty premium for second homes and buy-to-let properties in April 2016.

However, the average yields delivered by buy-to-let housing varies wildly from one region to another, with regions in Liverpool, Falkirk and Glasgow offering returns in excess of 8.67%.

Conversely, the performance of yields in high-value postcodes such as London and Reading is as low as 2.26%, while properties in St. Albans deliver an average return of less than 2% overall.

This represents a broad range of yields, and it’s clear that house price growth in certain regions has compounded the challenges facing buy-to-let investors in 2020.

Should You Consider Alternative Investments?

In this respect, you may be deterred from investing in real estate simply due to your postcode, while the ongoing impact of tax changes and coronavirus may also encourage you to seek out alternative investments in 2020.

Arguably, your interests may be better served by targeting derivatives in the current economic climate, as this would enable you to speculate on the performance of specific assets and avoid assuming ownership of a depreciating instrument.

The forex market certainly offers a relevant case in point, as this allows you to trade currency pairings and potentially capitalise on downwards trends and depreciation. 

Trading commodities may also offer a viable return in the current climate, particularly with performance of staples such as wheat remaining steady even during the peak of the Covid-19 outbreak in April and May.

It’s also estimated that this market will grow incrementally in 2021 after a year of consolidation, with an abundance of supply matched by rising demand across the globe.

Ultimately, aspiring buy-to-let investors need to consider their options in the second half of 2020 and beyond, with other assets potentially offering greater returns over a predetermined period of time.

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