In 2015, the buy to let sector was hit hard. The higher rate tax relief was removed (phased in from April 2017) in the Spring budget and Autumn Statement, the Chancellor announced that new buy to let and second home purchases would be subject to a 3% stamp duty premium, starting April 2016. This means a £175,000 property purchase will see stamp duty rise six fold from £1,000 to £6,250 and a £400,000 purchase rise from £10,000 to £22,000. Ouch.
These two announcements shift the buy to let goal posts and will make it difficult for investors to receive a desired return on investment. The bad news could continue as the Government has hinted at giving the Bank of England more power when it comes to limiting buy to lets, in the form of Loan to Value (LTV) restrictions on lending. This would not only affect new purchases but also those investors looking to re-mortgage their existing properties to release funds.
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Last but not least the final pressure point on buy to let investors comes in the form of a pending rise in interest rates. A zero inflation rate continues to postpone the inevitable but a rate rise will come and it could have a dramatic effect on the investment’s profitability.
All bad news for those looking for property backed investments? Not necessarily…in fact it’s good news for the emerging fintech P2P alternatives like Proplend.
An area of property investment that was previously the reserve of professional investors and fund managers is an investment into debt rather than equity. In other words you lend someone money against their property and receive regular interest rather than buying the property yourself. By investing in debt rather than equity, you receive a regular fixed income over a fixed period of time while considerably reducing your risk and exposure to the fluctuations of the property market.
This has been made possible by the advancement of Peer-to-Peer Lending, which enables private investors to lend directly to borrowers where their loan is secured against their property.
Proplend is a P2P Lending platform that specialises in loans secured against income producing, UK commercial property. Lenders receive a fixed income return over a fixed term with interest paid monthly. In the unlikely event that the borrower defaults, the property is sold in order to return capital back to the investors. Rates range from 5-12% pa* depending on the loan and the associated risk.
So as the buy to let market becomes less enticing, the P2P model becomes more so. Out with the old, in with the new. The times they are a changing.
* After fees, but before bad debts and taxes