Advertisement
Editor's letter

End Britain's love affair with bricks and mortar

We should limit housing’s appeal as a speculative asset in favour of more productive investments, says John Stepek.

Buy-to-let landlords in the UK enjoyed a wonderful boom from the late 1990s up until just before the financial crisis (and beyond in some areas). The British have long been partial to property as an asset class. But the huge, leveraged gains seen in the heady days leading up to the 2008 crash, with soaring house prices fuelled by low interest rates, really cemented the view that "you can't go wrong with bricks'n'mortar".

Advertisement - Article continues below

But recently, life has been getting harder for buy-to-let investors. House prices were already at unaffordable levels when the 2008 crisis hit. Prices slid in the immediate aftermath, but with the Bank of England slashing interest rates to near-0% and printing money (via quantitative easing) they didn't stay low for long. Meanwhile, the electoral calculus began to shift. Those who felt shut out of the housing market or feared that their children would be started to outnumber those who saw ever-increasing house prices as only a good thing. And landlords snapping up houses that would otherwise have gone to first-time buyers were an obvious target for their irritation.

Advertisement
Advertisement - Article continues below

So in 2015, with voters' anger growing, and a lack of affordable housing rapidly climbing the political agenda, then-chancellor George Osborne decided to curb tax breaks for landlords. While many didn't fully realise it at the time, the phased withdrawal of tax relief on mortgage interest payments was a disaster for mortgaged landlords, in many cases turning a profitable investment into a loss-maker. That became clear last year as the first phase of withdrawal began. According to Neal Hudson of Residential Analysts, quoted in the Financial Times this week, the number of flats bought in England and Wales fell by 10% last year, as buy-to-let investors stopped buying.

Advertisement - Article continues below

So you might think that landlords had suffered enough. Far from it. A report this week, written by Conservative MP Neil O'Brien (for a new centre-right think tank, Onward), reckons the crackdown has gone nowhere near far enough. Britain's rented sector "is now bigger than all but three of the 28 EU countries", he notes. If we want to return to the Conservative ideal of a home-owning democracy, "we cannot continue to incentivise the growth of buy-to-let in the way that we do now". Instead, mortgage interest relief should be scrapped outright, and there should be further reforms to property taxes.

We've talked about many of these things in MoneyWeek in the past, and I have a lot of time for the view that we should limit housing's appeal as a speculative asset in favour of more productive investments. But whether you or I agree with the report is largely irrelevant. The point is this is firmly the direction of travel. Any change of government is likely to lead to one that is rather less than more friendly to landlords. Future generations are unlikely to be as enamoured of bricks'n'mortar as today's are.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020
Properties for sale for around £500,000
Houses for sale

Properties for sale for around £500,000

From a 1920s timber house on a private island in Loch Lomond, to a two-bedroom Victorian cottage in Kingston upon Thames, eight of the best properties…
7 Aug 2020

Most Popular

Don’t despair on dividends – these companies could be set to bring them back
Income investing

Don’t despair on dividends – these companies could be set to bring them back

The value of dividends paid out by UK stocks has plummeted this year as companies “rebase” their payment policies. But things could soon start to look…
6 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”
Investment strategy

The MoneyWeek Podcast: how to age well and profit from the “longevity dividend”

Merryn talks to economist and author Andrew J Scott and discusses how we can profit from the "longevity dividend" as we live longer; why we need to re…
6 Aug 2020