Bricks And Torture Redux

From Buy-to-Let to Buy-and-Sweat

Friend,

Note: This squib is an update on this from the summer of 2022. Since then, interest rates have risen further, and the Buy-to-Let landscape is bleaker still.

Does any nation on earth have more love for property than ours? Aside from the weather and grumbling about potholes, nothing unites us more than a good natter about how much the neighbour’s house went for last week: “It’s unbelievable really. And it only has one en suite and we’ve got two, so ours has to be worth a lot more. Although theirs is a south-facing garden…”

Disclaimer: such conversations bore me rigid. I have no affinity for property: a home is somewhere to live. If it appreciates over time, great. Turns out that property price gains are largely a function of time and are often not as impressive as first thought.

So, yes, my biases will be shining through in this piece. Does it make what I say any less true? No.

Without a doubt, property as a standalone investment (e.g. rental “Buy To Let”) had attractions. I have several clients who have built up buy-to-let property portfolios. The income (rent) from these is helping them fund some or all of their retirement income needs, together with State pensions and other bits and bobs. One client couple has even incorporated their properties into a limited company, and their lives are happily built around growing and running this burgeoning empire.

Good for them, say I: these people have (in the main) eschewed traditional retirement income sources (personal pensions, ISAs etc) for the lure of bricks and mortar. That’s not a route I would go down BUT, as long as you know what you are doing and what you are getting into, it’s way better than doing nothing in terms of retirement income planning.

Or at least, it was.

For the last three decades or so, buy-to-let (BTL) investing provided strong returns via a combination of rising property prices and generally consistent rental income (the occasional dodgy tenants notwithstanding) sufficient to more than cover any associated mortgage interest payments, even after tax, management fees, letting agent fees etc.

Miss Jones, Rigsby and Philip discuss the pros and cons of property investing.

But things have changed. In 2022 the FT (paywall) suggested the good times could be coming to an end, as the-then UK government belatedly tried to deal with the inflation problem largely caused by the same government printing money during The Great Bedwetting of 2020-21¹.

Governments have one crude method to try and reduce the rate of inflation - by raising interest rates, making money more expensive and effectively strangling the money supply. The Bank of England did this viciously: on 9th December 2001 the base rate was 0.10%. Just 18 months or so later it was 5.25%.

This saw a massive spike in mortgage interest rates. In my experience, most BTL investors have borrowed to purchase. When those borrowing costs explode, the outcome can be distinctly sub-optimal, as we finance boffins say.

Triple Whammy

Taxation hikes in 2017 had already made BTL investing more problematic, reducing the net-of-tax return for property investors. And, as ever, it’s net we’re concerned about. No one lives off gross income. Couple these tax rises with a base rate going north quicker than one of Mr Musk’s rockets, and you have the perfect storm.

This double whammy of higher property taxes and an exploding base rate resulted in a third leg on the BTL stool of doom. Disenchanted BTL investors, looking to sell their rental properties en masse, are helping to drive down the prices of said properties, and reducing any resultant sale profit (itself then subject to Capital Gains Tax at 24%).

In short, the BTL market is being squeezed by

1. much higher mortgage interest payments

2. a more malign tax situation

3. a flux of BTL properties coming to market and subduing sale prices.

There’s more: impending legislation designed to change the landlord/tenant dynamic more in favour of the latter, as well as armies of Clipboard Stasi-types demanding endless retrospective building environmental certifications, problems with cladding etc, only makes the situation worse.

Clipboard Stasi says your boiler flue is 1cm too narrow and the whole house needs to be demolished

Don’t Take My Word For it

This excellent article outlines why a long-term BTL investor decided to sell his lovely central London flat. The author is part of the burgeoning Financial Independence Retire Early (FIRE) movement. These are smart, switched-on cookies, who do the maths on everything. If you’re interested in learning more about FIRE, do have a listen to this rather wonderful podcast. If you can’t bear the preamble, listen from about 44 minutes in.

Or read this article, which came out after I’d written this piece and which I’m inserting after the event, as it suits my argument (immature, me?) See extract below:

There has been a spike in landlords selling their properties at the start of 2025, according to data shared exclusively with This is Money.

It shows the proportion of landlords listing property for sale at the start of this year jumped by almost 50 per cent compared to last year.

In January, 25,049 homes were listed for sale that were previously rental homes, according to analysis by property data firm TwentyCi, representing 17.4 per cent of all new listings.

It is a leap compared to 2024, when 11.7 per cent of the homes listed for sale were former rental properties, according to the analysis.

And of course my clients are another source of informed opinion on this market. A tiny handful have BTL portfolios. Some are happy. Others, however, definitely have regrets about choosing this way to accrete wealth, to save for their future selves.

They find themselves saddled with properties generating rent which, net-of-tax and management fees, barely covers the interest payment on the mortgage. Properties that have shown little-to-no capital appreciation in recent times, which are not selling at prices already reduced to where the vendors thought they were two or three years ago.

Our obsession with property is unhealthy, and our planning laws ridiculous. Without the Bank of Mum and Dad, our children struggle to own property, which is why so many are disillusioned with capitalism: property rights mean nothing if you can’t own the bloody property.

If the demise of Buy-to-Let and the transition to Bricks and Torture gives us a Great Reset in this sphere, all the better. Stop with the property passion. Instead, become obsessed with inflation, the price of a first-class stamp etc. and in so doing become a more balanced, rational, nuanced person. Not only will you be more like me, you will be invited to better parties.

Or not.

1. At the time, the media tried to blame the return of meaningful inflation on Putin: don’t believe it; it was back in the system before Vlad got all possessive over Ukraine. If you deliberately put your economy into a self-induced coma (Lockdowns), with an obvious and dramatic plunge in the supply of goods and services, and then endlessly run the money printing machines in the name of furloughs, bribes and corruption, you get inflation. This is as elementary as The Dismal Science of economics gets. Right, I feel better now: back to the theme.