Tax and pension changes announced in Budget 2014 have an undisclosed cooling effect on property prices in the UK.
Expats and non-residents can no longer make a killing on British property by relying on a capital gains loophole exempting them from tax on property profits from April 2015.
Also, drawing cash from a UK based pension to fund property purchases under the new relaxed retirement saving rules is not a viable proposition for many investors.
Even though property prices in Britain are appreciating between 6% and 8% a year, depending on which statistics are followed, buy to let investment is no longer financially worthwhile once the numbers are crunched.
Property yields and prices are out of alignment for investors who cannot buy at bargain basement prices and have the cash to invest to add value.
Crunching the numbers
The Land Registry, which deals in prices homes were sold at, puts the value of an average home in England and Wales at £170,000 in February 2014.
A study by letting agent chain LSL Property Services puts the gross annual yield of a buy to let at 5.2% for the same period.
That’s before taking into account any mortgage interest and running costs, like insurance, management fees and periods where the property is standing without a tenant.
That yield means buying an average home on a 75% interest only mortgage gives a gross rent return of £736 a month.
At 4.25% interest, the mortgage would cost £451 a month, the letting agent around £130 a month at 15% plus VAT of the monthly rent and repairs an average 10% of rent – another £73 a month.
Tax and mortgages set to go up
That already adds up to £654 without insurance and covering for a month or two of voids a year.
Add to that an expected rise in mortgage interest rates over the coming months, the costs of landlord licensing and accreditation in some areas and rising house prices pushing down yields.
Overall the picture for new landlords going in to buy to let is not good.
From April 2015, the Chancellor is charging non-residents and expats capital gains tax on any profits they make on selling a property in the UK that was not their main home, in line with charging CGT on UK taxpayers.
Overall, the outlook for investing in buy to let for expats and non-residents who do not have other cash resources does not look enticing.
