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500,000 buy-to-let properties to be sold in the next 12 months; where do you put the cash?

 

The National Landlords Association has stated that 500,000 buy-to-let properties are likely to be sold in the next twelve months, and that landlord confidence is at its lowest ebb since the 2008 banking crisis. This crisis in confidence has grown because the Chancellor George Osborne has begun to tighten the purse strings on the profitability of the buy-to-let sector. 
 
Last year, Osbourne announced that mortgage interest tax relief on buy-to-let properties will be reduced over the next few years, to 20% by 2020. In the recent Autumn Statement, it was then announced that landlords would pay an additional 3% stamp duty charge on the purchase of property, and this levy will come into effect from April 2016. 
 
Amateur landlords who own properties with large mortgages could therefore feel pressure soon on rental profits. There are lots of people who may fall into this category, such as those who bought property as a way of saving or providing an income in retirement. There may also be those who saw property as a safe financial bet, but underestimated the costs involved in maintaining and running a property portfolio. It is this group of landlords who are most likely to sell out in the coming years and will be considering new investment options. 

If you are leaving the buy-to-let market, where do you then put the cash? 

Leaving the buy-to-let market may be the solution for many worried landlords, but the next difficulty will be to decide where to hold the net cash proceeds from property sales. Cash saving accounts continue to pay meagre amounts of interest. This is unlikely to change for the foreseeable future, which is why they are not considered a viable option for many people looking to hold significant sums of money for long periods of time. Even if interest rates do rise, the increases are expected to be in small increments, and are unlikely to rise to a point where savers can feel confident that their capital is producing a decent return above inflation.
 
This means that more people will be forced to consider investing in the stock market perhaps for the first time. For those who were used to the tangible nature of investing in bricks and mortar, changing tack and investing in the stock market, and at a time of global volatility, might require a broadening of perspective. 
 
This is when appointing a financial adviser can be invaluable. A good financial adviser will only invest your money according to the level of risk that you feel comfortable in taking. This means you can be a ‘cautious investor’ or a ‘speculative investor and opt for an investment strategy that suits you personally. Also when the markets are low, it can be a good time to invest, in order to make gains when markets recover.

How to start investing 

The first step is to decide your risk profile. Your financial adviser will take you through a series of questions to get a clear understanding of your plans for the future. They will wish to understand your financial needs, how you feel emotionally towards your money, and how comfortable you are in dealing with stock market highs and lows and the inevitable fluctuation in your capital value.
 
From there your money will be invested in a range of investment classes, including cash, corporate bonds and a range of stocks and shares and holdings in other funds. The aim being to spread the risk across many different asset classes, whilst producing a rate of return which is expected. 
 
Your financial adviser will also look at your tax situation and seek to make use of every available benefit. This will mean for example making full use of your ISA allowance each year, which in 2015/16 is £15,240 and the full amount can be invested in a Stocks & Shares ISA or a Cash ISA (or any combination of the two). Your ISA allows you to save or invest without paying tax on the income earned.
 
For those with significant sums to invest, a financial adviser may suggest appointing a stock broker or a Discretionary Fund Manager (DFM) too. A stock broker/ DFM will personally manage your money and invest it to meet a specific brief. There are more costs involved in providing this very personal investment service.
 
There are advantages of leaving the buy-to-let market. Holding property for rental can take significant time in both management of the building and in taking care of good and bad tenants. If you are considering exiting the buy-to-let market and would like advice
 please get in touch.

Date Issued: 12.2.16

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependent upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.