During the Noughties, landlords ploughed into property in the hope they could sit back, collect rent and watch house prices soar.
But today, a deluge of taxes and an uncertain market has seen tens of thousands abandon the buy-to-let industry.
The number of new landlords getting mortgages has plummeted by 60 per cent in the past decade, Money Mail analysis reveals.
Buy to let fret: A deluge of taxes and an uncertain market has seen tens of thousands abandon the buy-to-let industry
When buy-to-let was at its peak in 2007, around 183,000 mortgages were approved to landlords looking to invest in new properties each year, according to the trade body UK Finance.
New figures suggest the number of buy-to-let mortgages given out in 2018 plunged below 70,000.
On top of this, existing landlords are offloading around 3,800 properties a month, Ministry of Housing figures show.
So why are so many investors turning their backs on property — and are there any opportunities left to make money?
'IT'S NOT WORTH IT ANY MORE'
The Government announced a major clampdown on buy-to-let in 2015 amid fears landlords were pushing up property prices for struggling first-time buyers.
Its first move was to deter new landlords by introducing an extra 3 per cent stamp duty charge for anyone buying a property that was not their main home from April 2016.
It means that instead of paying £5,000 in tax on a £300,000 home, they now have to pay £14,000. Figures suggest the new charge had the desired effect.
Banks approved 117,500 buy-to-let mortgages in 2015. The next year this dropped to 85,000 and then to just 74,900 in 2017, with the market still worth a huge £239 billion.
The then Chancellor George Osborne also took steps to hit existing landlords' profits with a series of stringent new tax rules.
Buy-to-let investors could previously shave 10 per cent off the income tax they paid on rental earnings for 'wear and tear' to their property.
The Government announced a major clampdown on buy-to-let in 2015 amid fears landlords were pushing up property prices for struggling first-time buyers
This applied even if they hadn't spent anything on maintenance that year. But since April 2016, landlords have been allowed to deduct only the cost of replacing furniture or building work.
On top of this, they will soon no longer be able to deduct the interest they pay on their mortgage from the rental income they declare to the taxman.
Previously, if you earned £10,000 in rental income and your annual mortgage interest payments were £6,000 you would pay tax on just £4,000.
Mortgage interest tax relief is being phased out, and has been slashed by 25 per cent every year since 2017. By 2020/21 it will be scrapped all together. To soften the blow, a new 20 per cent mortgage interest tax credit is being gradually introduced.
Retired teacher Margaret Melrose has been a landlord for nearly 40 years. Today, Margaret, 65, owns five properties worth £2.5 million in Greenwich and uses the rent to top up her pension.
But she says the recent changes and added bureaucracy mean her investment isn't worth it any more, and she plans to sell up: 'It has become draconian.
There are around 125 pieces of legislation landlords must adhere to. Soon, I will be paying more money in tax than I make.'
HIT BY PUNITIVE TAX CHANGES
High-earning buy-to-let landlords will be hit hardest by the new tax credit scheme.
Those earning between £46,351 and £150,000 — including from rental income — pay 40 per cent income tax, but will be only able to deduct 20 per cent of interest payments from their final rental income tax bill.
So if they paid the rate on a £10,000 rental income and their interest payments were £6,000, they would only be able to claim a £1,200 credit on their £4,000 tax bill.
This would leave them with a profit of just £1,200. The previous regime would have left them with a tax bill of £1,600 and a profit of £2,400.
Under the new scheme, basic-rate taxpaying landlords, who only have to pay 20 per cent tax on rental income, will be left with an £800 tax bill after the credit is applied and a profit of £3,200.
Higher-rate taxpayer Paul Atkinson, 45, says the new rules mean he will barely break even.
Paul, who lives in Telford with wife Ella, 45, and son Jack, 13, has a two-bed apartment in the town he rents out for £525, and a three-bed house for £575.
Paul is well versed in the tax changes because he is the director of mortgages at financial advice firm Finance 4 Business.
He says: 'Over the past few years, the lack of the ability to offset the mortgage interest against the rent has eaten into our profits.
'We're going to see how the next couple of years goes. But if someone offered us a good price for the properties, we'd probably sell.
'At best we are breaking even now, but going forward we will have to subsidise the properties.'
He adds: 'For small landlords like us, there is a lot of work that goes into maintaining the property, meeting regulatory requirements, for very little return.'
Previously, landlords could usually get a mortgage if they earned enough rent to cover the mortgage repayment. Now, they must earn 25 per cent more in rent than the cost
PUSHED INTO A HIGHER BAND
Basic-rate taxpayers, thought to make up 80 per cent of buy-to-let landlords, are also at risk of being pushed into a higher tax bracket because they now have to declare all their rental income — including any used to pay the mortgage — on their tax return.
B&B owner Terry Boswell, 65, is so concerned about the tax changes that she has already started selling her properties.
Terry bought a two-bedroom flat in Abingdon, Oxfordshire, in 1998 for £59,995 and began renting it out in 2001.
She then used the equity she built up to buy two more investment properties. But when the tax changes were announced, she could see they would no longer be profitable, so she sold them.
She plans to sell her last property in two or three years.
Terry, a basic-rate taxpayer, says: 'I could see the way the legislation was going and knew I wasn't going to be able to make anything from the properties after the changes.
Before the changes to mortgage interest relief, Terry could deduct £5,064 from her rental income of £10,800, leaving her with a tax bill of £1,145 and a profit from her flat of £4,591.
If she becomes a higher-rate taxpayer, she will pay 40 per cent on the £10,800, less her 20 per cent tax credit giving her a tax bill of £3,308 — meaning her profit will be nearly halved to £2,428.
NEW LANDLORDS BEING PRICED OUT
Prospective landlords must now also consider whether they would even be accepted for a buy-to-let mortgage in the current climate.
In 2017, banks and building societies introduced tougher lending rules to make sure investors can afford the loan they are asking for.
Previously, landlords could usually get a mortgage if they earned enough rent to cover the mortgage repayment.
Now, they must earn 25 per cent more in rent than the cost of their mortgage, and in some cases 45 per cent.
Calculations by mortgage broker firm John Charcol suggest that the new rules mean an average landlord could be offered around £50,000 less per property.
On top of this, landlords must now be able to prove they could afford their repayments if rates rose to a whopping 5.5 per cent — known as a stress test.
Charcol's broker Nick Morrey says: 'The only way to pass stricter lending rules is to bring loan costs down by offering the lender a bigger deposit.'
The good news is that mortgage interest rates have at least plummeted, making borrowing cheaper. In 2007, for example, the average fixed‑rate buy-to-let deal was 6.03 per cent compared to 3.3 per cent today, according to Moneyfacts.
Prospective landlords must now also consider whether they would even be accepted for a buy-to-let mortgage in the current climate
SLOWDOWN IN HOUSE PRICES
Concerns that house prices could tumble as a result of uncertainty over Brexit have also put off would-be landlords.
Previously, many investors bought properties not for the income, but in the hope they could sell them later down the line for a higher price than they paid for them.
Parts of the UK have enjoyed rapid house price growth for a decade. In the South-East of England property prices have risen 50 per cent over the past ten years, and in London by 60 per cent, according to Government figures.
But by November last year, house price growth in the UK had slowed to 2.8 per cent on average, down from 5.1 per cent in the year to November 2017.
Ian Browne, a pension specialist at Old Mutual Wealth, says: 'When the property market is doing well, it is understandable people would bank on it for future wealth.
But landlords must remember property is like any other investment: it comes with the risk that it can go down in value as well as go up, and it is difficult to get your money out quickly.'
BUT IT'S NOT ALL DOOM AND GLOOM
The good news is that there are still opportunities for new investors to make money from buy-to-let.
These are typically found in areas with low property prices and strong demand for rentals. Manchester tops the table as the most investible rental market in the UK, according to research from Shawbrook Bank.
The city's jobs market is booming and its universities provide plenty of demand from students looking for houses to rent. University cities can be particularly attractive due to this strong rental demand. These include Liverpool, Middlesbrough and Plymouth, the research says.
Rising prices are one of the reasons retired GP Nick Cunningham decided to buy his first investment property in Birmingham last year with a pension lump sum.
Nick, 57, from Stoke-on-Trent, says: 'I was paying around £450 a month for my daughter's student accommodation and there were seven people living in the house. I thought: 'Whoever owns this is making a killing.' '
Nick, who is married to Elaine, 55, and has two children, bought a seven-bedroom house in Selly Oak for £425,000 using a limited company. He now receives more than £3,000 in rent a month.
Buy-to-let experts Aldermore Bank say landlords in the higher tax bracket, who plan to build up a portfolio of multiple properties, may want to also consider transferring them into a limited company.
Such landlords pay corporation tax on the rent, instead of income tax. Corporation tax is charged at 19 per cent, and is set to reduce to 17 per cent in the tax year 2020/21.
The downside is that mortgage costs can be higher. The average limited company fixed rate is 3.93 per cent.
- Landlords who need support can contact the National Landlords Association on 020 7840 8937 or the Residential Landlords Association on 03330 142998.
s.partington@dailymail.co.uk
https://textbacklinkexchanges.com/category/the-sun-world/
https://textbacklinkexchanges.com/how-britains-239billion-buy-to-let-bubble-burst/
News Photo How Britain's £239billion buy-to-let bubble burst Advertising
You don’t have to pack away your bikini just because you’re the wrong side of 20. These body-beautiful stars reveal their secrets to staying in shape and prove you can smoulder in a two-piece, whatever your age. Read on and be bikini inspired!Kim says: “I am no super-thin Hollywood actress. I am built for men who like women to look like women.”
https://i.dailymail.co.uk/1s/2019/01/22/21/8856574-6620839-image-m-5_1548191960485.jpg
