"They might find that selling and putting the funds in equities, pension funds, Isas and so forth is more tax efficient, much more liquid and stress-free.
"They can put their feet up with a cuppa and let their financial adviser do all the work within tax-efficient structures."
Others, however, say the exemption for smaller businesses mean the corporation tax changes will affect just one in 25 buy-to-let investors.
Additional concerns
Jiten Varsani, mortgage and protection adviser for London Money, says that other changes have also had an effect on the market, not least the fact that "lenders are now using stricter rental stress tests, thus limiting lending amounts".
Varsani says there are a series of factors that have combined to cause some buy-to-let investors to "pull away".
Some depend on location, he says, but highlighting his own area of North London, he lists some of the negatives:
- Higher property prices mean higher initial deposits required.
- Tax changes have meant lenders are using stricter rental stress tests, thus limiting lending amounts.
- Rental amounts have not increased proportionately to house prices so net returns/yields have fallen.
- The perceived hassle of being a landlord (with the lower yields) is unappealing.
- SDLT changes have meant greater outlay upfront and longer periods required to recoup this expense.
- A recognition that property prices may not increase as much as they have in the past.
When all these are factored into the tax changes of recent years, and the prospect of even more tax reform affecting the sector, Varsani says he is not surprised that the "dream" of BTL investments seems more distant for some.
Long-term players
Not everyone thinks buy-to-let is a losing game, however.
King says: "There will always be those professional landlords who have a 20-plus year view, love property as an asset class and are in it for the long haul".
But she says these people will already be sitting on a decent sized portfolio and will have worked out an exit plan to suit them.
Varsani agrees. "For some, the buy-to-let dream is still there and looks attractive. For those that are basic-rate taxpayers, seeking investments in areas with ‘low’ purchase prices and high net rental yields, there is still an appeal."
Lenders certainly see life in the market; although many mortgage products dropped in volume as a result of Covid-19 across residential and buy-to-let, banks and building societies, as well as specialist lenders, have been returning to the market.
Truswell comments: "As the market returns to normal, we will see the continued growth of professional landlords through 2021, 2022 and beyond. The sector will continue to forge ahead."
Why? "People need a roof over their head. Demand for rental property is strong for structural reasons", he says.
Truswell cites the following as factors that will continue to drive demand for retail residential properties:
- Continued rise of single-person households.
- Lack of housing supply outside of private rental sector.
- Generation Rent attitudes & the increasing need for 'flexibility' in a fluid job market.
- House prices growing faster than the ability to build up a deposit. Even with 95 per cent residential loans on the horizon following the latest Budget, the average house price of more than £250,000 demands a minimum £12,500 deposit to get on the ladder.
- Impact of Covid – furlough, redundancy, and challenges for self-employed demonstrating trading income. Access to mortgage finance may become harder to obtain.
According to Truswell, professional landlords will be able to capitalise on these despite the tax challenges, and to take advantage of rising house prices to "gear up and release equity" and remortgaging to leverage cheaper debt.
This, he says, can help them create reserves to increase their portfolio size - perhaps even absorbing the stock sold by amateur landlords.
