Is buy-to-let the right investment in today’s market?

One of the hottest topics in my mailbox at the moment is buy-to-let, or buying a house as an investment to rent out to other people. This has been popular in the Netherlands for years, with good reason, but a number of new developments have made buy-to-let a much less positive choice at the moment. In fact, if you ask me for my advice, I would say don’t do it.

There are several reasons for this, many of which are, ironically, linked to the shortage of both rental property and property to buy in the Netherlands.

Firstly, many local authorities have brought in restrictions on who can live in certain properties. Some, for example, want to reserve homes for teachers or police officers. Others have made it a rule that you must live in a property yourself for up to four years before you can move on and rent it out.

Some local authorities have introduced a minimum purchase price as well. In Amsterdam, for example, you can’t rent out a property that cost less than €550,000 to buy – unless to a close family member or you are posted abroad temporarily.

These are local government restrictions and differ widely from city to city. But there are also nationwide implications to think about, such as tax. For example, your assets are collected in “Box 3” for tax purposes and second homes are more heavily taxed at the moment than stocks and shares, and savings.

It is very likely next year that the taxes associated with owning property will go up even more because you will no longer be able to deduct your Box 3 debt – your buy-to-let mortgage – against your Box 3 assets – your rental property.

Be aware too that banks don’t lend more than around 50% of the market value of a property that is going to be rented out, so you will need to be able to put in a considerable amount of capital as well. Interest rates too are higher for buy-to-let properties, which means your monthly payments will also be higher.

The government had more changes in the pipeline, such as increasing rent controls to cover more property and getting rid of two-year rental contracts. That would mean if you had to get rid of your property, you may then have to sell with a sitting tenant, which will have an impact on the price.

Of course, we don’t know if the next government will carry on with these policies or not and it could take a year or more to find out because the general election is not until November. But it is clear the measures which have already been introduced are encouraging some landlords to sell up, particularly if they own a small property that could be covered by rent controls.

Estate agents I speak to tell me that they have more ex-rental properties on their books, particularly in the bigger cities. They tend to be the smaller investors with a couple of properties that they see as their pension but faced with higher taxes and everything else, have decided to take the money instead.

Rental housing may have been a stable and attractive way of investing your money in the past, but at the moment there are just too many question marks. It might seem odd that I, as a mortgage broker, am telling you not to buy a place to rent out, but I would be failing in my duty as a financial advisor if I did not give you the complete picture.