Property Investment

someday2010

I'm considering investing in Buy to let property but despite the enormous rents at the moment the tax regime is really pitted against investors with the tax relief on mortgages interest being progressively diminished to nothing.

After analysing all income and costs it seems like a pretty bad investment. Am I missing something what's are people's thoughts

Peregrinus

Be very slow to make any investment whose attractiveness depends on tax treatment. Tax treatment is politically determined, and can change at any time, which means that such an investment is always attended by a degree of political risk. Don't make the investment unless the risk is one that you're happy to run.

I think there's a couple of issues rolled up in your post that could stand to be disentangled. The attractiveness of investing in buy-to-let property depends on how much you pay for the property, what the rental yield is, how the rental yield might change in the future, and how much you might sell the property for in the future.

The tax treatment of mortgage interest doesn't (directly) affect any of this. What it mainly affects is the attractiveness of borrowing to invest in buy-to-let property. If you can finance the investment without borrowing, you have less need to worry about the tax treatment of mortgage interest; you won't be paying any mortgage interest.

Of course, it could still affect you indirectly. If you buy a buy-to-let property with your own funds, you're still concerned to know how much you might eventually sell it for. And if it's the kind of property that's mainly going to attract other buy-to-let purchasers, then adverse changes in tax treatment of mortgage interest relief might limit the number of people interested in buying it in the future, and so limit the price you can hope to achieve.

Of course, this cuts both ways. There's a widespread feeling that too little residential accommodation is available to let, and that rents are too high, and if there are future changes in the tax treatment they may be designed to make buying and letting more attractive, not less so. That could result in increased demand, and a higher eventual sale price. (On the other hand, if the policy is successful, it could also result in lower rental income while you hold the property.)

In short, I suggest investing in buy-to-let property is attended with a fairly high degree of political risk, and borrowing to invest with an even higher degree. That risk is both upside and downside - it could work out well or badly for you. If you have an appetite for risk and are prepared to accept the possibility of a poor outcome in return for the prospect of a good one, then by all means open the throttle on buy-to-let investments. If you prefer a quieter life, invest in something else.

jamesthepeach

Just look what has been done to the property investor in the last few years.
That's just going to get worse.
There are easier and less risky ways to invest your money now.

Lumen

someday2010 wrote: »

...the tax regime is really pitted against investors with the tax relief on mortgages interest being progressively diminished to nothing.

Mortgage interest tax relief is being progressively increased to 100% "by 2021". It's currently at 80%. So expect 5% a year.

The_Conductor

Totally aside from the tax treatment of property investments (which is treated as 'unearned income' in a personal tax return)- the whole regulatory regime is setup to protect the tenant at all costs- and to assume that the landlord is in the wrong, no matter what.

Its far from unusual for tenants to overhold property for months- or simply not pay rent- and if/when they are eventually brought to court (you have to exhaust the RTB processes first) to plead penury and get off scott free.

Seriously- unless you know exactly what you're doing- and even then, its not a good idea.

DubCount

Buy2Let with a mortgage is a hard investment to make work. Even allowing for the pro-tenant regulations, I found the maths difficult to make it work. Interest rates on Buy2Let property is more expensive than for an Own Home mortgage. You can expect about 5% interest, and with only 80% of that allowed for tax, this makes the interest rate effectively around 6%. Getting a Yield of 7-8% is pretty good going, so there is limited to negative profit on the borrowed element of the investment after you pay all the other costs. Add in Capital repayments on the mortgage and your monthly cash flow is almost certainly negative.

In my view, Buy2Let has become a game for cash buyers only. If you consider the risks of non-payment of rents, or damage to property, I'd steer clear.