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.
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.