The Death Of The Dinner Party Buy To Let
Capital & Interests: How the market forced out the amateur landlord.
Harry Arnold 13.08.2024
DINNER PARTY IDEAS
Earlier in my career hardly a Monday morning passed without a new or returning customer getting in touch, asking how they might make some sort of Buy-To-Let investment. Typically, this idea had been sparked by a conversation with close friends, lubricated by the third bottle of wine on a Saturday night, and now they were ready to sober up over the financials. The dream of a passive income and a burgeoning property empire would sometimes shrivel in the cold light of day, but back then, in the era of the Dinner Party Buy-to-Let, deals went ahead.
While we’re receiving fewer inquiries from these “enthusiastic amateur” landlords, the number of those who actually go ahead with it sees an even sharper drop-off once we’ve had a chance to discuss the financial realities. To shatter the veneer of those Instagram Reels with a happy landlord staring into the sunset on a tropical beach, all expenses covered by the sixteen HMO’s they snapped up for £80k a pop in Grimsby (my wife’s hometown, HQ of my beloved in-laws), we are obliged to break down the tax regime, capital requirements, and financing costs involved in such a venture. No sunsets in sight. This leaves the enthusiastic with food for thought, and the rest running to their nearest Vanguard tracker fund.
the irony of everything
Is it worse to be a Landlord or a Banker in the eyes of the public? The Conservative government of the past 14 years has pulled off a parlor trick (until they didn’t), convincing the affluent middle class that they champion entrepreneurial spirit, while simultaneously imposing hefty taxes on property and specifically targeting landlords. 3% Surcharge on Stamp Duty, removal of interest rate tax relief, constant tinkering with tenancy legislation and poor economic management leading to rising interest rates. An after-dinner digestif that’s awfully hard to stomach. For those frustrated with the growing wealth inequality - which far exceeds income inequality - landlords have become a caricature, serving as a convenient political tool to win over disenchanted voters.
Many of the original entrepreneurial opportunists entered the market in the mid-90s, politically encouraged to do so in order to address the housing needs of a growing middle class. The government promoted Buy-to-Let as a solution to a major problem of the time - pensioner poverty. By encouraging people to take control of their own retirements in the expanding private rental market, the pressure on the welfare state would be eased. Deregulation of the sector, along with generous tax incentives suggested a new social contract: the older generation would provide homes for the young, in exchange for a stable retirement income.
These days, you would be hard pressed to find an MP who is willing to speak up for these “wealth creators”, despite the term being used by the government with frequency. With proposed capital gains tax increases in the upcoming Budget, this could be the final nail in the coffin for the Dinner Party Buy-To-Let, leaving the market split between (often harder-nosed) professional landlords and institutional investors.
A MORTGAGE MAZE
The Buy-To-Let mortgage market is now littered with bizarre products and complex criteria - the “2.59% 2-year fix with the 9% Bank fee”. Lenders offer a dizzying kaleidoscope of different products, each with varying rates, fees, and maximum loan amounts, depending on the type of landlord and ownership structure. This labyrinth is a headache for regulated advisors, and a minefield for enthusiastic amateurs, where a simple misstep could lead to huge financial errors.
With increasing regulations, complex mortgage products, and rising taxes, navigating this terrain calls for more than enthusiasm - it demands expertise. While there is still huge potential in property investment, professional support has never been more important. At Anderson Harris, we specialise in guiding both seasoned investors and those new to the market through the complexities of the property landscape, helping you make informed decisions that align with your goals. Reach out today for a conversation, and a tailored solution to your property investment.