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Although the last six months have undoubtedly been difficult for many property investors and landlords for others this has been a period of opportunity. Capital growth for investors has been increasing as the property market experiences a boom following the easing of lockdown and, while rentals may be static or only rising slightly, the increase in equity has allowed some landlords and investors access to more funds to buy more properties.
The suspension of stamp duty land tax (SDLT) up to a value of £500,000 for landlords and property investors in England has encouraged many people to think that this is the ideal time to invest and expand their portfolios. Although the additional surcharge of 3% remains in place many landlords and property investors believe that this cut is incentive enough to expand their portfolios.
It is important to note that second home and buy-to-let purchasers do not benefit from the increase in the threshold of stamp duty to £250,000 in Scotland and Wales.
Coupled with the reduction in VAT to 5% for most work that needs to be done to renovate a property there are many who feel that this is the right time to invest and grow their portfolio.
Only the individual landlords and investors can decide if this is the right time to invest. This will involve a number of factors such as age, stage of investment, attitude to risk, and plans for the next five to ten years. It is interesting to note, however, that the Legal and General Mortgage Club has recently reported an increase by 18% since the start of September in the number of first-time buyers entering the buy-to-let market.
Whatever your circumstances it is essential to understand that property investment is not a short- term prospect. People who enter the market expecting enormous returns in three to five years are in for a shock. All property investment needs to be conducted in the medium to long term for five to ten years minimum but generally longer.
This means that, despite the occasionally gloomy short-term outlook, you should be looking at the market as it will be in 2025 to 2030 and beyond. Of course, this is incredibly difficult but all historic and projected predictions indicate that property has always recovered, has always performed well as an asset class, and remains the cornerstone of any sound investment strategy over the longer period.
I would hesitate to say that you can’t go wrong as something negative can always happen but in general most people do well in the property market. They have in the past and will do in the future.
That is not say that it is all plain sailing. Clearly many landlords and property investors are experiencing real pain at present from loss of income and financial insecurity. But they should also realise that while they may have lost immediate income, they are likely to have gained from an increase in capital growth in their property and therefore financial restructuring may be possible utilising their extra equity. This could be used to offset their short-term rental income losses or even purchase more properties.
For those considering expanding their property portfolio they may be concerned about the rumoured increase in capital gains tax (CGT) which the Treasury is currently looking into. This is a concern if it does occur but of course does not apply until the asset is realised. It is important in any financial situation to plan for the worst so that you are prepared for any future liabilities but to also realise that you will be in charge of triggering this by deciding when you sell. You must, therefore, plan to realise your assets at the most appropriate time for your circumstances whether that is now or in five, ten, or fifteen years’ time. It is hoped that by the time you sell, you will have accumulated substantial capital growth. None of us now know but perhaps every homeowner will be paying CGT in the coming decade.
The coronavirus pandemic has clearly led to many people reflecting on their personal and financial situations and circumstances and making decisions about what is the best way forward. For some this will be growth, expansion, and increased risk but also potentially increased value. For others it may be contraction, perhaps even exiting the market as security and safety become the guiding principles in their lives.
Just as many predicted the end of the buy-to-let market when the tax advantages started to be withdrawn five years ago it is clear that many savvy landlords and investors acknowledged this made it more difficult to invest but equally understood that with planning and proper management they could adjust their business model to make it work.
Major decisions on property investment must always be carefully considered, planned, and calculated. You must understand your attitude to risk and set goals for investing for the future. But the present time clearly offers the potential to invest for the future in a market that has current uncertainties but will look very different in five years’ time. This could be the time for opportunities and investment growth and those who are ambitious will act now.