Property Investment: Time for a Re-Think…

The new investment environment appears hostile to people looking to acquire property.

The government has unleashed a Trojan horse of policies galloping through the marketplace, destroying anything in its path. So, anyone looking to invest in property needs to be innovative. Some of the draconian policies are as follows.


Rethink Property Investment


First, the Bank of England is now intent on pursuing macro-prudential measures with a

view to curbing excessive credit growth and encouraging reasonable borrowing in this

‘low for long’ interest rate environment. The Financial Policy Committee (FPC) has

introduced regulations requiring banks not to give residential mortgage to borrowers

which are more than 4.5 times their income. It also requires banks to ‘stress test’

borrowers’ ability to repay the loan. Some banks now ask borrowers to raise 25%

deposit before applying for a loan. As regards BTL mortgage, how much an investor

can borrow from the bank would depend on how much rent the property generates.

Most lenders expects the rent to be 25% more than the loan.


Second, the government introduced the Finance Act 2015. As part of that Act,

Buy-to-let (BTL) landlords will be prevented from deducting their mortgage interest

costs from their rental income when calculating taxable profit. This approach makes

it unattractive to invest in the rental market.


property investment


The policy which appears more destructive to the market than any other is the introduction

of the new stamp duty surcharge. Since 1 April 2016, anyone buying a second home

would pay a higher rate of stamp duty, thereby making the cost of buying beyond the

reach of ordinary people. This change of policy not only affects BTL investors but

also some First Time Buyers (FTB). For example, a wife who is a FTB would pay

the new surcharge if her husband already owns a property.


As already stated, anyone now looking to invest in property needs to be guile, tactful

and innovative to overcome these hurdles. Lenders now look at borrowers’ outgoings

and their income when determining loan affordability. FTB and BTL investor should

therefore be moderate in spending as the last 6 months of their bank statements will

be examined.



Also, putting down a large deposit will facilitate a favourable mortgage terms.

However, some banks are now giving 100% mortgage. For instance, Barclays Bank

has recently introduced the 100% mortgage, which is good news for investors.

Additionally, other lenders such as Nationwide and Halifax have relaxed the age

restriction and have raised the limit to 80 years old, making loans accessible to older



The major challenge is being able to surmount the stamp duty surcharge hurdle.

Most FTB can surmount this hurdle with ease since they are exempt from paying

the extra 3% surcharge. They are nonetheless required to pay the lower stamp duty.

But where the purchase price is below £40,000, stamp duty is not payable.


Another way to overcome paying the stamp duty surcharge is to negotiate with the

developer (if the property is newly built) or with private sellers for them to cover the



Further, if a mixed investment (i.e. part residential and part commercial property) is

purchased, the extra surcharge is not payable. And a property developer who buys a

commercial unit and convert it to residential flats would not have to pay the extra

stamp duty surcharge. This effectively reduces the cost of purchasing property.


Lastly, a property owner who lives in his main home can rent out the main house and

buy another property. Although the stamp duty surcharge will initially be paid, this

will be refunded if the original home is sold within 18 months. In the meantime, the

owner can earn income from rent received within the 18 months window.


In a nutshell, a buyer who is able to overcome the current challenges will likely enjoy

the fruit of his labour. For instance, in early 2015, the English Housing Survey found

that increased wealth was generated from property investment. The total value of

Britain’s housing stock is estimated at around £6trn. Property value in Britain increased

by £385 billion since last year. So, any buyer who takes that small step towards property

investment effectively takes a giant step towards wealth creation.

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