The end for London property investment?

Some grim reading from Bloomberg, here

Short version: Government grabbing extra tax from buy-to-let landlords, extra stamp duty, property prices stagnating, rents dropping across greater London by over 4%.

What does this mean?

Depending on your tax bracket (the higher the worse it gets), you simply cannot make a profit by buying and renting out a property.

Where is the real problem? The average cost of a house is over 14 times the average salary in London. Look up the definition of a bubble and that is about it. Brexit is the needle that threatens to burst the bubble in a spectacular way. Time will tell as Brexit has not occurred yet.

The only thing that can save house prices is: powerful and growing economy (more money in people’s hands), more people coming to London (greater demand), continued restrictions on supply (lower supply). At the moment we have the opposite: Economy under great threat (less money), Brexit stopping the migration of people into London (lower demand), hundreds of residential towers coming onstream, more supply due to buy-to-let landlords unloading properties that are no longer profitable (excess supply). Add that the government seems intent on destroying the buy-to-let market with punitive tax measures and you cannot see a way forward for property investment, at least not for the time being. Not to mention interest rates are about as low as they can go with only one direction possible and that is up. Brexit will cause an increase in inflation, particularly with a weaker pound and if inflation gets out of control the Bank of England will have to raise interest rates to control it. That is very bad for the housing market as higher rates make owning property less affordable, with higher mortgages you need higher rents to cover the extra interest payments but as we know, rents are going the other way…

These are facts that we can’t get away from. If someone says that property prices are going to be ok then just ask them to explain which of the above factors are going to change. If they can’t then they are wishful thinkers.

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