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Is the buy-to-let property market dead?

56% of landlords in England aren’t confident that property investment will provide an adequate return over the next ten years. We look at why, and an alternative.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

There are an estimated 1.5 million landlords in England. Property has long been a go-to option for people looking for a bank-beating return on their excess cash.

But the good times appear to have gone the way of the dodo.

In a recent survey of 19,000 landlords 17% said they’re likely to sell up this year. More worryingly though, 56% weren’t confident property will provide adequate returns over the next ten years.

We take a look at what’s changing in the buy-to-let market, and another option for money.

The yield and growth figures we’ve used are historic and aren’t an indication of what you might get in the future. All investments go up and down in value, so you can get back less than you invest. Tax rules can change and their impact or benefit depend on your personal circumstances. This article is not advice, if you’re unsure about your investment decisions please seek advice.

What's strangling the life out of the buy-to-let market?

In recent years, tax and regulatory changes have hit landlords hard. These include the reforming of the ‘wear and tear’ allowance, a new 3% stamp duty surcharge and mortgage tax relief cuts.

Let’s look at mortgage tax relief first.

You can’t pin the struggles of buy-to-let at one person’s door, but George Osborne will face part of the blame. During one of his final budgets he put landlords to the sword, bringing higher-rate mortgage tax relief to an end. Landlords could offset mortgage interest payments against rental income. But the 100% relief has been dwindling since 2016. It will fall to zero from April 2020 and replaced by a 20% mortgage interest relief.

Here’s an example for a higher-rate tax payer with rental income and mortgage interest payments of £750 and £300:

Tax year Rental income Mortage interest payments Tax Net income
2016-17 £9000 £3600 £2160 £3240
2017-18 £9000 £3600 £2340 £3060
2018-19 £9000 £3600 £2520 £2880
2019-20 £9000 £3600 £2700 £2700
2020-21 £9000 £3600 £2880 £2520
Change +33% -22%

Depleted income means people are now more reliant on capital growth. And now Brexit has become a significant fly in that ointment too.

In 2016, before the Brexit referendum, the average UK house price stood at £210,872. The latest figure is £230,292. That’s a return of 9.2% in three years, and a far cry from the 22.1% rise in the previous three years.

Suddenly we’re into a spiral of forced sellers – people whose rental income no longer covers the cost of the property or who are uneasy with the turbulent political environment.

Yet when they do sell out, they’re often stung by capital gains tax (CGT).

CGT is payable on any profits made on the sale of an asset. You have an annual CGT allowance of £12,000 (2019/20). But sell and make a profit of more than this on a second home, then you’re facing CGT rates of 18% or 28% – depending on whether you’re a UK basic-rate or higher-rate taxpayer.

This has already started to take effect. In the 2018/19 tax year, CGT receipts rose from £7.8bn to £9.2bn – a lot of that is due to landlords selling up.

Other burning issues for would-be landlords

Tax aside, there have also been a raft of other changes facing landlords.

  • Minimum space requirements for bedroom sizes (from Oct 2018)
  • Homes (Fitness for Human Habitation) Bill (from March 2019)
  • Minimum energy efficiency standards extended (from April 2020)
  • Five-year electrical safety checks (no confirmed date)
  • Landlords legally required to join redress schemes (no confirmed date)

Plus, since 1 June 2019, the fees landlords & agents can charge tenants have been reduced by law (e.g. check out & admin fees). Some agents are looking to pass the full costs on to landlords – will rents have to rise to compensate? If they do, this will increase income, and a landlord’s tax liability further.

The government’s also in the midst of a consultancy period to end the practice of “no-fault evictions” in England by abolishing Section 21. If this goes ahead landlords will need a good reason to evict tenants in the future.

With so many new rules, it’s no surprise 80% of landlords don’t feel they’re familiar with the current changes.

The argument for being a landlord

People will always need a place to live. It’s a basic need we all have. And average rents are still going up above the rate of inflation in most areas.

The other positive is that unlike many other investments, mortgages give you the chance to leverage your existing wealth. 72% of landlords bought their first rental property using a mortgage. You only need to cover the deposit on a property with the mortgage covering the rest. This means you only need your rent to cover your mortgage payments – often buy-to-let mortgage providers require rental income to cover at least 125% of your interest payments to be accepted, but they might need more.

For example, you might only need £50,000 of your money to buy a £200,000 property, if that property rises in value to £210,000 – you’ve in effect made a 20% gain on your initial investment. Although this ‘gearing’ effect works the other way if house prices fall in value. Had the property value fallen to £190,000, you’d have lost 20% of your money. Gearing is good in rising markets, but it can be painful when things take a turn for the worse. How many times did we read during the financial crisis of people falling into negative equity – where the value of their property was below the amount owed on their mortgage?

Let’s not forget, you can also add value to a property. Savvy property hunters have been looking for undeveloped opportunities for years. And the cost of developing (if done prior to first rental) can be added to your original cost price of the house and offset against future gains.

Is there another option?

Some might feel recent changes are just the tip of the iceberg, with landlords an easy target for further tax changes. Others may just question whether being a landlord in today’s environment is worth the effort – especially when there are other options.

The stock market is just one alternative.

It’s a misconception that investing in the stock market is gambling, or the playground for the rich and famous. Truth is, anyone can invest in the stock market, and people from all walks of life are doing it every day. In fact, if you’ve got a pension with your employer, chances are you’re already investing in the stock market.

We’ve taken a look at the average capital growth of the UK market, and property prices since June 2004. The UK stock market has significantly outperformed property during that time. There will be areas within each market that will have performed better or worse.

Timeframe Property UK Stock market (FTSE All-Share)
Last 5 years 23% 12%
Last 10 years 44% 87%
Last 15 years 57% 82%

UK stock market vs average UK house price

Past performance isn’t a guide to the future. Source Lipper and HM Land Registry Public Data correct as at 28 August 2019.

When investing in the stock market, you’ll also get regular income payments. Recently, the UK stock market has yielded around 4%, although dividends aren’t guaranteed, yields aren’t a reliable indicator of exactly what you’ll get in future. As with property, the value of any investments can go up or down, meaning you could get back less than you invest.

Three key benefits of investing in the stock market vs property

Tax shelters – The less tax you pay, the more money you get to keep. You can hold stock market investments in either an ISA or pension. All income and gains will be free from UK tax. And with a pension, the government will still give you up to 46% tax relief on the amount you pay in.

Pensions are meant for your retirement, so you normally can’t access your money until any time after your 55th birthday (57th from 2028). Pension and tax rules can change and tax reliefs depend on your circumstances.

Spreading your money – given the high entry cost, most landlords will only have one or two properties, often in the same area. When investing you can spread your money across the globe and reduce your investments in one area to reduce your risk.

Get your money back quickly – it takes over two months on average to find a house buyer. With the stock market you can normally sell quickly and either move the money into another opportunity or have it back in your account within days. This is great for keeping flexible in a busy and ever-changing lifestyle.

How to start investing in the stock market?

If you’re new to investing, we think investing in a fund is a good place to start.

With a fund, your money is grouped together with lots of other people, and managed by a fund manager. It’s then spread across different areas or companies, so you don’t have all your eggs in one basket.

But with over 3,000 different funds to choose from, where do you start?

We’ve heard this a lot from people over the years. And that’s why we’re here – to give you the information, and help you decide where to invest.

Here’s a quick summary of two ways you could get started. This isn’t personal advice. You can find out more about these and other options on our website. If you’re not sure if these are right for you, speak to an adviser.

A tracker

A tracker pretty much does what it says on the tin. It aims to track the performance of a stock market as closely as possible. They’re easy to understand and a straightforward way to invest. With one investment, you’ll spread your money across the stock market – so you don’t have all your eggs in one basket.

See a list of our favourite trackers


If you’re looking for something different. You can choose from six ready-made portfolios for different needs and goals. Choose the one that best matches what you want and leave the day to day management to us. Then all you need to do is check regularly that it’s still right for your needs and attitude to risk.

Discover Portfolio+

Help during a big change

Shifting from property to an investment portfolio might feel like a big change. The sale of a property (especially if it’s mortgage free) will mean you end up with a considerable lump sum to invest. You don’t have to go it alone. Our flexible financial advice service can help.

Gain confidence and get clarity with a free initial, no-obligation consultation. You’ll find out if advice is right for you. Many people we talk to discover they don’t need advice, and we support them with free information to help them get on track.

Contact us about advice before 30 September and we'll remove the minimum charge. Terms apply.

Book a free consultation

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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