Britons just won’t give up on buy-to-let (but they really should)
George Osborne’s plans for buy-to-let property make the sector look decidedly dodgy. But that’s not stopped people thinking it can solve all their financial problems.
Who'd invest in property today? The answer should really be "almost nobody". Last year, George Osborne announced some initially innocuous-sounding new rules on the tax treatment of mortgage interest payments on buy-to-lets. We saw the implications of them pretty quickly and started warning here and here.
It has taken a while for the news to sink in, but now everyone's running the depressing numbers. According to Telegraph Money, landlords borrowing a "typical 75%" of the property value will be losing money each month in ten out of 11 British regions including London.
Things might not be that bad the Telegraph assumes some interest-rate rises that may not happen. But if you add the paper's calculations of negative cash flows to the rise in stamp duty for buy-to-let and second properties, the whole sector looks a little dodgy to the rational eye.
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That doesn't appear to be deterring investors they are just looking for ways to dodge the new taxes. Residential property investment firm LCP notes that the percentage of UK investors in its latest fund is up to 50%. Back in 2007 when it launched its first fund, that number was 30%. This makes some sense, if you think there are still capital gains to be had in London (see our posts on this here and here). After all, go with a fund and you don't have to worry about either the stamp duty (large investors are to be exempt) or the new taxes. You can also invest via your Sipp or Isa.
At the same time, a survey just out from Baring Asset Management tells us that some 10% of people intend to finance their retirement either by selling or renting out a property other than their primary residence. And the younger people are, the more they are relying on this as a plan: 25% of 18-25 year olds say that their pension planning is all about property.
Seems that if Mr Osborne wants to put people off relying on the UK property market to solve all problems, he has a little more work to do.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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