Buy-to-let is no longer viable, Rathbones warns
Wealth management group Rathbones declares "the golden age of investing in UK residential property is over".
Buy-to-let no longer offers the returns that made residential property such a successful investment for decades, according to one of Britain’s leading investment management companies.
Rathbones says its appeal “appears greatly reduced” compared with investing in a diversified portfolio of financial assets.
In its latest report, Don’t Bet the House, Rathbones argues that the economics of residential property investment have changed significantly since 2016 as house price growth has slowed, borrowing costs have risen, and the regulatory environment has become less favourable for landlords.
The wealth manager says it sees little prospect of a return to the conditions that drove strong property returns in previous decades and concludes that “the golden age of investing in UK residential property is over”.
Buy-to-let invesment
It notes that the average value of a home in Britain has risen 3.7% a year since 2016, which is broadly in line with inflation.
In London, however, house prices have increased by just 1.3% annually, which is 2.2 percentage points below inflation.
Higher interest rates may even render their business model unviable.”
At the same time, higher interest rates have weakened the buy-to-let business model. Typical two-year fixed rate deals for landlords, using a 25% deposit, have risen to slightly above 5%, having been less than half that amount a few years ago.
Rathbones says: “For the landlords that have relied most heavily on mortgage financing, higher interest rates may even render their business model unviable.”
Better returns
It believes investors would have achieved much better returns from a diversified portfolio of financial assets, with a simple mix of 25% UK equities and 75% international equities rising by 3.4 percentage points a year above inflation since 2016.
The report adds that higher rates of Stamp Duty on additional homes, the reduction and removal of mortgage interest tax relief for landlords, and increasing regulation are exerting more pressure on investors.
I have just visited Reykjavik and our taxi driver mentioned how prosperous Icelanders were before 2008.
Have we forgotten the “run on certain of our financial institutions?” These companies are still being wound down 18 years later at taxpayers expense.
You will be glad to know that Iceland is still in business and prosperous despite having to import everything except seafood.
All the American “gas guzzlers” have been scrapped.
The most upsetting was his monthly energy (electric), water and council tax bill of £22 per month. This is his entire out goings for him and his family.
I had forgotten how heavily taxed we are in the UK.
I’d agree with John
The reason people invest in property is probably the same reason vinyl record collections still exist, or people buy physical books. Your collection could be gone tomorrow. SpaceX IPO’s and the circular nature of the big tech firms “investments” show just how irrational the market is, and could very much go pop tomorrow, taking much of your pension pot with it.
Its true that we had too many “dinner party landlords” who didn’t take the profession seriously, but not today. Those that remain are modernising houses that would otherwise languish, building new property and providing much needed homes and to drill them out from the market completely isn’t going to benefit the wider population…
I must have the wrong pension advisors as my pension pot has risen 12% less than the value of my rental properties. Stock markets go up and down look at 2000 to 2003 a massive drop that took years to correct and the financial “experts” at present are predicting a savage stock market correction . My grandfather told me in the 70s property and land they are not making more land it has stood me in good stead backed up with a balanced portfolio. Dont write property off just be very careful where and what you buy.