Last week’s Budget contained yet more bad news for buy-to-let landlords. Big landlords – those with more than 15 properties – had expected to escape the new “second home” stamp duty surcharge of three percentage points. However, “the chancellor instead declared that all buyers of additional homes would be subject to the levy”, says James Pickford in the Financial Times. Not surprisingly, M&G Real Estate thinks this will “slow down the market in the short term by adding to costs”. It wasn’t the only snub for the sector, reports The Guardian’s Rupert Jones. Capital-gains tax was cut from 18% to 10%, and 28% to 20% – except for on the sale of residential property that isn’t your primary residence.
Already some landlords are trying to find loopholes that can help to minimise the impact of these changes. FT Adviser notes that some lenders are encouraging investors to transfer their buy-to-let portfolios into companies or limited liability partnerships. At the end of last year Kent Reliance published a study that predicted a large surge in property lending to limited liability companies.
However, we’d be wary. We’ve been sceptical about buy-to-let as an asset class for some time. House prices in London look particularly vulnerable, and investors are leaving themselves open to future rises in interest rates. But perhaps even more importantly, George Osborne has made it clear that the government would prefer houses to be owned by owner-occupiers, not buy-to-let landlords, who he also clearly sees as a soft target politically. Any loopholes exploited today could end up being closed tomorrow. Those keen to invest in property should consider listed vehicles; or, if you really want to go down the buy-to-let route, make sure you have a much larger margin for error than you would once have considered wise.
House prices in London are now so high that, based on current wage and price trends, it would take a single first-time buyer just under 46 years (45 years and nine months to be precise) to save enough money for a 15% deposit, according to estate agents Hamptons. While things would be easier for a couple, it would still take them eight years to save enough. Even property in less salubrious areas of the capital has been shooting up in value as people are pushed out of more expensive central areas, notes Chris Papadopoullos in City AM. While the overall London market has gone up by 11%, according to Rightmove (which records asking prices rather than achieved prices), peripheral areas such as Barking and Dagenham have seen prices rise by 23.5%.
However, there are signs of a turn. “Prime” London has been suffering amid a supply glut and rising taxes at the top end of the market. Areas such as Kensington and Chelsea have seen asking prices fall by 0.5%. Given the average price of a house in that area is £2.35m, it will never be “affordable”, but it’s further evidence that London’s unsustainably high house prices may be giving way. The boom that started in central London and radiated outwards could now be collapsing. In the meantime, prospective buyers might want to consider options in other parts of the UK. For example, it takes just two years on average for first-time buyers to save a deposit in the north of England.
n It’s not just London – many of the world’s most expensive property markets saw rents slide last year as the super-rich were hit by falling commodity prices and turbulent stockmarkets. Knight Frank’s Prime Global Rental index fell by 1.1% overall, with Geneva the hardest-hit city – prime rents there fell by 7.1%. Guangzhou in China remained the strongest performer, with prime rental growth of 5.3%. Prime rents in London ticked higher by 0.7%, but fell by 1.1% in the last quarter of 2015, again suggesting that the market is on the turn.
London house-price lunacy
A single parking space in one of London’s most exclusive addresses (it’s next to Hyde Park) has gone on sale for £350,000, almost twice the £190,000 price of the average British house (and half the cost of a typical one-bedroom flat in the same area). Investors in parking spaces are betting on rising rental prices – a tax-free allowance of £1,000 for homeowners who earn extra income this way was even part of last week’s Budget.
However, this space looks optimistically priced: even if you rented the most expensive “space in Westminster… for more than 50 years… it would still be cheaper than… this space”, Harrison Woods of online parking site, YourParkingSpace.co.uk, told the Daily Mail.