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Is the tide turning on UK buy-to-let?

Louis Coke


The Government recently announced tax changes affecting the way mortgage interest can be offset from property rental income. This has the effect of reducing the attractiveness of buy-to-let properties for investors who have mortgages on their properties.

At the same time, UK residential property price growth is expected to ease, new enquiry growth at estate agents is reducing and the average expected price growth over the next 12 months has slipped to just over 1%.
Source: RICS May 2017: UK Residential Market Survey

Putting these factors together, we believe investors with substantial buy-to-let property portfolios may wish to consider introducing some diversification to their asset base by reducing their property exposure and investing in an investment portfolio.

This is a rather compelling alternative for investors for a number of reasons – including the following:


It is easy to forget that diversification is important when we have a national psyche aimed towards property ownership. However, let us not forget that property, for all of its good points, can be a very hard to sell, often reliant on borrowed money and is vulnerable to recessions. For investors who have been exposed to property for many years there is a strong argument to take some profits and cast their investment net wider, encompassing new asset classes and exposure to new geographic regions.

Income from multiple sources

Many investors see buy-to-let property as a way to generate either a primary or secondary income. This is very understandable – regular cash flows and upward-only rent reviews make a compelling investment case. However, property investors should bear in mind that, their income is coming from one source – the tenant. If that tenant vacates the property or defaults on their rental obligation, your income ceases. It is also the case that the outgoings associated with the property still continue which can leave landlords in a tough position. If any legal action is required for tenant disputes, the costs can be significant.

With an investment portfolio, we ensure income is generated from a number of different sources to avoid this loss of income issue. By way of example, a ‘typical’ portfolio managed by our team consists of 20-30 holdings, each contributing to the overall income. In the event that one investment reduced or stopped income payments, there is not necessarily any immediate impact to the other investments, meaning income payments can continue.

Use of tax allowances (UK residents)

One of the advantages of investing with a Discretionary manager such as Charles Stanley, if you are UK resident is that we can utilise two of your tax allowances – your Capital Gains Tax allowance and your ISA allowance. Over time, the use of these allowances means that you can move your income-producing assets towards your ISA, removing them from any income tax and capital gains tax liabilities. With the ISA allowance for 2017/2018 at £20,000, a sizeable amount of assets can be invested in this tax-efficient manner over a number of years.

Using of your Capital Gains Tax allowance each year means that any future cash withdrawals are less likely to attract a Capital Gains Tax charge, because capital gains will have been managed over the years, rather than left to be crystallised at the point of sale

The levels of taxation and their respective treatment depend on your individual circumstances and the applicable law, which may be subject to change in the future.

No borrowing

One of the key advantages of the UK property market over the last 30 years has been the use of leverage, or borrowing, in order to invest in property. In an environment of rising asset prices and falling interest rates, this makes for a good environment for investors as indeed we have seen. However, investors may be forgiven for having forgotten that the reverse can be true in times of rising interest rates. Borrowing becomes more expensive to service as asset prices fall and loan to value ratios increase.  This in turn leads to still higher borrowing costs. We are not forecasting a crash in the UK property market but it should be remembered by investors that borrowing is something of a double edged sword, and should always be used in moderation.

Investing in a diversified portfolio of investments, such as those we manage for our clients, does not involve any borrowing. This gives more flexibility in terms of investment because borrowing will not force you to sell and does not carry the ongoing cost of servicing a mortgage on a property.

We have also noted recent comments from the Bank of England regarding UK interest rates which could affect the cost of mortgage payments.

Should you wish to discuss any investment options, please do not hesitate to contact me.

Email: [email protected]

Telephone: 01483 230824

This article is for information purposes only and should not be construed as personal advice based on your circumstances.  The value of your investments can go down as well as up and you may not get back what your originally invested.


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