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Expert warns investors to plan their investments with care

A property expert from Finchley-based Richard Anthony Chartered Accountants has warned potential investors to plan their investment with care. This comes in light of figures published in recent days suggesting that property prices are tumbling in nearly half of London’s postcodes.

Ali Oftadeh, a partner at the firm, said people new to property investment can be tempted to concentrate on tasks such as identifying properties to purchase and dreaming up renovation plans.

“However, these more enticing aspects of property investment are only possible when the sums add up, which is becoming increasingly difficult to achieve but by no means impossible,” he said.

“These sums need to be guided by a clear commercial strategy to actually realise a profit from your investment,” he added. “This might be through buy-to-let, holiday lettings or development. Whichever it is, investors need to have a plan in place from the start.”

Although interest rates are close to record lows, a number of changes in recent years have made the investment landscape increasingly challenging for property investors. Changes made to stamp duty in April 2016 mean that any existing homeowner who wants to buy a second or ‘additional’ property (for whatever reason) now faces an additional 3% surcharge when purchasing.

Oftadeh said investors need to keep this in mind, as the rules governing stamp duty can make it a costly process.

“It is important to ensure you can cover these costs, yet continue to make a profit when you could to let the property,” he said. “This will affect virtually all property developers, irrespective of the commercial strategy they have chosen."

He added: “It is equally important to factor in other typical purchase costs such as conveyancing and surveyors’ fees.”

According to Oftadeh, an average investor buying a £150,000 property effectively loses £5,000 in stamp duty, while legal fees can cost anywhere between £850 and £1,500.

Other recent changes could also pose problems for property investors, including the modifications to mortgage stress tests implemented by the Prudential Regulation Authority (which particularly impact on those managing a portfolio of mortgaged properties) and the gradual phasing out of mortgage interest tax relief (which began in April 2017).

Aspiring property investors also need to be aware of Capital Gains Tax (CGT) – which is a tax levied on the disposal of appreciating assets such as additional homes.

Oftadeh, however, believes property investors shouldn’t be deterred by the more challenging landscape.

“Despite all of the tax challenges faced, property investment remains incredibly popular in the UK and letting out property can still prove lucrative if the right advice is sought,” he advised. “The same can be said for purchasing the right property to sell on for a profit at a later date.”

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