In the days of the 2004 to 2008 house price boom, buying buy-to-let property seemed a positive way to make some extra income.
You were owning a property which was increasing in value while your rental income was covering mortgage repayments. It seemed you were on to a winner.
Then things changed, instead of escalating, property prices first halted, then crashed. As a result, houses which promised a guaranteed route to a handsome profit ended up a loss-making liability.
Many landlords with buy-to-let properties felt, and continue to feel the full effect of this severe change of events. Rather than prosperous property owners, they became landlords in negative equity, with all the resulting shortfalls and debts.
This situation is an on-going state of affairs, with many of buy-to-let landlords still wedged in negative equity, uncertain of what options are available to them.
During the boom times, buy-to-let was a much-preferred method of investment, and there are over two million such owners in the UK.
Do not confuse these buy-to-let investors with ultra-rich speculators who bought an apartment complex to rent them out for mega rent.
Many buy-to-let landlords who have suffered do not belong in that category; instead, they’re ordinary middle-class people who chose to buy property for their children, who were, or still are studying at university. Or they are someone who was looking to make little extra money on the side with a few rental properties, perhaps to help with early retirement.
It seemed to be an outstanding investment all around, a complete money-making savings plan, which as well as being set up to provide a nest-egg, offered the opportunity of providing immediate accommodation for their children and in many cases, for their fellow-students too.
Other buy-to-let landlords invested in property to let out to tenants who required rented accommodation. Today, many of those landlords own homes with negative equity.
With Chancellor George Osborne's tax that is applied at a rate of more than 100% of the investors’ return, it hasn't gotten any easier for Landlords in the UK.
Buy-To-Let Is Still Popular
However, buy-to-let remains prevalent, even though interest charges on the repayments of buy-to-let mortgages are usually higher, as well as the deposit required. Mortgages tend to be interest-only too, which begs the question of how the capital is to be repaid at the end of the loan period.
Despite these complications, buy-to-let remains popular. As a result of reforms to pension regulations that took effect in April 2015, people from the age of 55 now have access to their retirement funds, and some are electing to invest in buy-to-let property. Hopefully, they will have pursued reliable and independent financial advice before doing so.
One can only be optimistic that they dodge joining the ranks of landlords in negative equity and that, as buy-to-let landlords, they do not become victims of George Osborne’s tax.
Fact: if landlords bought a property between 2005 and 2008, there is the strong likelihood that they are in negative equity, which is not helped by the unrealistically high house prices of that period, along with reckless lending from the banks and building societies.
Buy-to-let landlords have paid, are paying and will continue to pay a hefty price for some of what has gone on.
If you are a landlord with properties in negative equity, get in touch with a member of the Landlord Debt Advisory
team today for advice.