Until recently, buy-to-let property was considered a sound investment by all quarters of the industry. However, in 2020, landlord’s profits have been hit hard by changes to tax laws and the continuing coronavirus pandemic. If you are considering buying a property, or are uncertain whether to continue letting or sell up, here’s a few things to consider.
Private rents are falling in city areas, especially London, according to widespread media reports. This is largely due to a knock-on effect of the ongoing Covid-19 situation. Prime locations such as Bloomsbury and Clerkenwell are taking the hardest hit, with reports of rents down by between 6% and 20% compared to this time last year.
Some tenants have relocated to cheaper or more spacious places after being able to work from home, and deciding to make the arrangement permanent or frequent. The bottom has also dropped out of the Airbnb market as tourists continue to stay away. Companies are also delaying relocation plans, so no new workers are moving in.
There is also a potential 50 to 75% drop in international students this year, which is affecting rental prices in cities throughout the UK.
Another factor to consider before making a buy-to-let investment is the 3% surcharge in stamp duty on additional properties, which was introduced in 2016. Furthermore, since 2017, mortgage interest relief has been reduced. This has affected higher-rate tax payers, who have seen 40% tax relief on their mortgage payments reduced to a flat rate of 20%.
Despite all the negative news, a buy-to-let in the right area can still provide you with a decent rental income, and generate capital growth as the value of your property increases. Demand for rental properties has surged in suburban areas, for example, as the need to commute becomes less important.
If you do decide to purchase a property, it is recommended to seek a professional pre-acquisition survey. This will flag up any maintenance issues, and help you decide if you are paying a fair price.