Let me be straight with you. I’ve been investing in residential and commercial property since 1982 and I have a substantial portfolio. I’ve gone beyond just investing: Back in 2002 I wrote the first major course for aspiring property investors called “The Property Investment Profit System.” I’ve also spent seven years sourcing below market value investment property for clients.
With this background you, might expect me to be an enthusiast for property investment, writing this article to encourage you. But this article is very different!
My views have changed. Radically. I’m not saying that property investment is bad for all investors and in all circumstances—far from it. But I do believe the environment has changed significantly for investors, and for those seeking income rather than long term capital growth is now a far more questionable proposition.
Why should this reversal of my view have come about?
Reason No 1: Reduction of Mortgage Interest Relief
In the UK, the biggest single problem facing property investors today is the phased withdrawal of higher rate tax relief on mortgages for buy-to-let residential properties.
Starting in 2017 and running through to 2020, the ability of landlords to offset mortgage interest against rental income and obtain tax relief at their highest marginal rate is progressively being withdrawn.
The impact is going to hit hardest property investors who are a) higher rate taxpayers, and b) those with high levels of borrowings. If you are a 40% taxpayer and you have leveraged your properties by borrowing 75% or more, you could very possibly be in a position where a good profit and positive cashflow is turned into a loss and negative cashflow. Just by the changes in taxation!
This is frankly worrying and working out the impact on their portfolio should be a high priority for every property investor.
In my view this tax change is a huge signal from the UK Government that they think investors in property have had it too easy. The tax regime for property investors is getting a lot tougher. We’ll see more of that in the next reason not to invest now!