I have a buy-to-let portfolio. What should I do?
If you believe the property market is likely to dive 20% or more, now could be a good time to collect any profits.
Ray Boulger of Charcol, a broker, said: “People who bought in, say, 1999 may feel it’s a good time to sell if they are pessimistic about the market. There may also be a case to sell a property if rental supply exceeds demand in your area.”
There are costs in selling, however — particularly if you face a large capital-gains-tax (CGT) bill. Melanie Bien of Savills Private Finance, a mortgage broker, said: “Many investors will, and should, stick with buy-to-let because their residential property holdings have been their best-performing assets over recent years. They probably won’t see the astonishing capital growth they’ve enjoyed recently in the short term, but over time prices tend to rise.”
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How can I protect my returns if I hold on to my properties?
One way to tackle the problem of lower rental yields is to remortgage to a lower-rate deal.
The margin between rates on standard residential mortgages and buy-to-let loans has narrowed over the past 12 months. Charcol believes investors could cut their interest bill by up to a quarter by remortgaging.
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Boulger said: “Lenders have been dropping rates on buy-to-let deals for about a year, although the pace has picked up in the last six months. The slowing market has also forced them to make it easier for people to invest in buy-to-let properties by accepting smaller deposits and requiring less rental cover.”
Is it worth holding on to my investment properties so I can put them into my pension?
The tax advantages of holding a rental property within a Sipp look set to make this option very popular with investors. Almost eight in ten advisers are planning to make use of the change, according to research by Morgan Stanley Quilter.
However, the government has yet to finalise the rules and there are also potential disadvantages, including having to give up control of the property to your pension-fund trustees.
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Tom McPhail of Hargreaves Lansdown, an adviser, said: “Decisions such as whether to employ a managing agent will no longer be in your hands, and you will also have to give up the income. I would also caution against putting all your bets on any one asset class. There are no guarantees that property will be performing well in 20 years.
“Selling a property on which you have made a lot of money to your pension could also mean a large CGT bill.”
Is there an argument for investing in buy-to-let properties at the moment?
Few first-time buyers spell trouble for the housing market as a whole, but should mean more demand for rental properties.
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Simon Tyler of Chase de Vere Mortgage Management said: “Falling house prices generally mean that people are less keen to buy as they want to wait until the market bottoms out.”
Many economists also believe the base rate is unlikely to rise by more than 0.25 percentage points this year.
Bien said: “With the base rate appearing to be near its peak, pressure on landlords’ cashflows should ease this year. And with prices falling, you may be able to pick up a bargain.”
But there is another cloud on the horizon for the buy-to-let sector. Tony Blair, the prime minister, wants home ownership to rise from 71% to 80% of the population within 10 years.
Plans include building 15,000 homes aimed at people who have so far been unable to afford to buy, and so have rented instead.