The additional stamp duty charge for second properties and changes to mortgage interest tax relief has left many would-be Central London landlords wondering if buy to let is still worth it. Changes to tax laws mean that many landlords have seen a hit to their profits, so is buying to let in London still a good business model?

In recent years, property price growth has slowed where Brexit and the COVID19 pandemic both meant that the housing market took a double hit. As a result, buying to let has become potentially riskier compared to in the past. Along with this, the government has clamped down more heavily on buy to let recently, with changes to the tax system. However, we believe that with the right agent and the correct advice, becoming a Landlord is still as lucrative and beneficial as ever. Finding the right tenants and marketing your property at its optimum level is essential!

A three percent surcharge was added to stamp duty on additional properties in 2016, including buy to let properties and second homes. And, since 2017, mortgage relief has also been steadily decreasing. Before then, the previous scheme allowed landlords to deduct any interest paid on their mortgage before paying tax, giving higher-rate taxpayers a forty percent relief on their mortgage payments. While this will not impact you as a landlord if you are a basic-rate taxpayer, you may be affected if you are a higher or top-rate taxpayer. Along with this, landlords in London now have to consider that they must declare the income used to pay their mortgage on their tax return, unlike under the old system where rental income could first have mortgage payments deducted before declaring. For some landlords, this could mean being pushed up from the basic rate to the higher rate, resulting in a bigger tax bill.

Despite the changes to buy to let in recent years, the answer to whether or not it is still a worthwhile investment will go beyond tax alone. You should take into consideration the type of investment that you want and the main goal of your investment. Before deciding if buying to let in London is the right option for you, consider these pros and cons:

• The major advantage of being a Central London landlord is your rental price is very unlikely to fall, in fact in likelihood it will increase and more than cover your mortgage. We have seen the majority of properties to rent in 2022 go well above asking prices.

• As the value of your buy to let London property increases, you will generate capital growth. This is especially true in Central London where house prices have been steadily rising for many years.

• Insurance is available to cover you in the event of loss of rental income, legal costs, and any damage to the property. Our Greater London Properties team can advise you on how to begin this process and the options available to you.

• Once you purchase your property, find a full-service estate agents to take on the day to day property management. It makes becoming a landlord extremely stress free.

• Buying to let will have an implication on your tax bill which could potentially reduce your profits.

• You will need to have the right insurance in place to make sure that you can still generate an income if there is nobody living in the property. GLP are committed to reducing void periods and fortunately for our London Landlords we can have tenants waiting to move in so it’s a swift crossover.

• You will need to consider additional costs such as stamp duty, property wear and tear, and landlord insurance. With the right advice from both your mortgage adviser and your estate agent as well purchasing the right type of property, Central London Landlords can feel confident that as an investment it is still profitable.

No matter which area of London you are looking to buy, the process will usually involve these four basic steps:

1. Get your finances in order. It is a good idea to consult with a financial advisor who will be able to help you determine how much money you should invest and the type of returns you can expect. A mortgage broker can help you find the best mortgage in principle offer so that you are ready to start making offers once you find a property that is suitable. Greater London Properties can recommend advisers for both areas if you need advice.

2. Find a property and make an offer. In general, it’s usually quicker compared to buying a personal home, especially if the property is already empty or is rented currently. However, don’t count on this. Ideally, you should allow at least a few months for the process to be completed.

3. Get the right insurance. You will need to get buildings insurance for the property at the very least. Although it’s not legally required, you should consider taking out landlord insurance to cover you in the event of any legal costs, injuries to tenants, or loss of rent.

4. Find Tenants: Now that there are so many different legalities with renting a property, it is recommended to use an agent. It is advised that all tenants are properly referenced, especially is central London to ensure that your insurance is full covered. There are also many other factors such as registering a deposit, getting the correct certificates, inventories and drawing up a legally binding tenancy agreement between you and each tenant. Our Lettings Team at Greater London Properties can do all this on your behalf.

“With all the changes to buy to let and uncertainty in the property market over the past few years, it’s no surprise that many would-be landlords are wondering if buy to let property in London is still worth it. It all depends on your investment goals and how much profit you can reasonably make. Luckily for our buy to let landlords, Central London is still a fantastic rental hotspot. We currently have some great investment properties for sale, do give us a call to arrange a viewing”.

Feel free to call us on 0207 734 4062 to chat about any of the above. We are here to offer advice and support throughout the whole process whether it be Buying, Selling, Renting or Property Management

If you would like to find out more about Greater London Properties, head to our about us page.

Warm Regards

Rob Hill, Director