George Osborne’s message to buy-to-letters: “don’t”

We’ve made our views on buy to let pretty clear here over the last few weeks. We don’t have the moral problems with it that some do – in the right circumstances owning property and renting it out is a perfectly acceptable investment activity. However, given the political and economic writing on the wall, we have long thought that getting into it would be a bit nuts.

Prices are high; yields are low; the change to the tax relief on mortgage interest looms large. The FCA looks likely to intervene in the loans market just as it has with residential mortgages. And now – from April 2016 – there is to be a new three-percentage-point stamp duty surcharge on any purchases. Had that been in place for the first three quarters of this year it would have cost the average buyer an extra £4,565 in stamp duty (numbers from mortgage lender, Kensington) That’s real money.

Crucially, it is also money that borrowers have to come up with in cash, on top of their deposit – you can’t borrow your stamp duty. That will (obviously) cut the number of people able to buy and bring prices down (or at least stop them rising). Good perhaps for residential buyers; not so good for buy to let investors.

The last time we looked at this we ended up with a clear message (it’s a bad idea). If you aren’t listening to us, you might think about listening to George Osborne. The message he is sending couldn’t be clearer: don’t do it.