A missed opportunity

The budget last week appears to have raised a storm in some areas, such as the increase in N.I. contributions for the self employed. For the property world and those interested or engaged in it however it was a non event, leaving in place the taxes introduced by his predecessor which targeted small and individual property investors.

The hope in the Buy to Let investor world was that some relief from the previous years changes would be offered by the new Chancellor.


The article in the link from Simply Business below just about sums up the thoughts of these investors, and reflects the disappointment felt at a missed opportunity to correct failing policies.



Holiday Homes – the latest Buy to Let boom gains momentum

The changes to the tax treatment of Buy to Let properties over the last 2 years has started to shift growth in Buy to Let properties towards the Holiday Home sector. A trend predicted by many experts once the new tax rules began to be rolled out in 2015 .

It now seems that 2017 will create very healthy conditions for the surge in Holiday Home  investment to accelerate. The profit motive for these investments has never been stronger  and the economic climate post brexit is ideally suited to encourage holidays in the United Kingdom Both these factors will inevitably lead to more and more investment in Holiday Home accommodation.


The profit motive for this shift in investment exists because Holiday Homes are treated as a trading business and so are exempt from the recent tax changes on Buy to Let investments. As well as this a  holiday home can give a substantial annual return in rent  if the right location is chosen.  The limited stock of Holiday homes in the “right ” locations should also ensure capital appreciation becomes a positive factor in the investors considerations. Its no wonder that many people now see this as a potential retirement investment which will give a good income during retirement.


As with any pot of gold though there are difficulties, financing being one of these difficulties. Obtaining a mortgage on a holiday home often requires some searching among providers. The most difficult to finance are the purpose built holiday homes on leaseholds and many holiday parks now offer their own financing options to overcome this difficulty. Mortgages do exist though and Independent brokers can often assist potential investors in finding the right type of mortgage for their property purchase. of course If the holiday home is a freehold cottage or a house in a tourist location, which could be flipped to residential use then sourcing finance through a mortgage is far easier.

As well as a profit motive incentive the economic climate is also a positive. The fall in the value of sterling against other currencies is expected to create a boom for holidays being taken in the United Kingdom, and the launch of easy to book sites such as Airbnb now makes booking accommodation in a holiday home a simple exercise. So supportive economic conditions, new channels for reaching holiday makers and the tax benefits all make this market a potential hot spot for Buy to Let investment.


This shift in the Buy to Let market was predicted some time ago , in fact almost as soon as the new tax riles were announced, as can be seen in the article on the link below, its just taken a little while to build up a head of steam, and now its moving it does not look likely to halt for some time to come.

Informative 2015 article in the Daily Telegraph  http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11979388/Why-holiday-homes-will-be-the-next-buy-to-let-boom.html



Buy to Let and the taxman, an opinion

In the last year the taxman has attacked the buy to let investment market, seeing it as a soft target that can be squeezed to raise more taxes. Of course the justification for these increases in the tax burden are wrapped up in a focus on the high earning landlords who have built up a sizable Buy to Let property portfolio. This ignores the fact that the bulk of new entries to the Buy to Let market have been individuals seeking a reasonable return from their savings, at a period of time when the Bank of England has sought to keep interest rates low and therefore returns on savings are equally depressed. A number of these investors are the very people who the old Chancellor urged to take control of their pension funds and to avoid the record low annuity rates which are on offer. Given annuity rates, given interest rates, no wonder many people saw property and Buy to Let property as the only viable option.

Once this investment flow started to grow, then the old Chancellor pounced. So the Chancellor gives freedom to access pension funds with one hand and increases taxes with the other. The claim is that the intent is to drive housing stock back into the market away from the greedy landlords who are holding on to it.

What nonsense.

The need is for more housing stock full stop. The shortages at present are both in the Housing buying and selling market and the property rental market. Driving properties from one to the other just moves the shortage elsewhere. The only solution to shortages in all areas of housing is a surge in house building. Oh for all the houses cleared in the 60s and 70s when governments saw a brave new world of tower blocks and spent tax money clearing what they called slums. ( others called them investment opportunities). More housing stock would drive out excess profits from both markets, reducing margins by the simple application of supply and demand.

Of course the problem is that the plans for house building do not even begin to clear the shortages and in fact still fail to keep up with population growth and therefore demand for housing, either to buy or to rent. Those in power realise it could be 20-30 years before this happens. So they will continue to tinker, and be seen to be doing something while taking as much tax income as possible.


In fact given the continuing depression of interest rates even with the tax changes it still leaves the Buy to Let investment as one of the few available from which investors can get a reasonable return. So although the market may have faltered briefly, we expect it to continue to go from strength to strength, with investors still finding a great balance of rental returns and capital appreciation. This is probably what the taxman expects as well, they want the extra taxes and will not wish to kill the golden goose. If you want to understand the impact of the tax changes then the link below connects to what we believe is a great article which outlines the changes in detail.

Do the maths yourself and you will find that even with the changes Buy to Let still offers remarkable returns when compared to other investments.