A growing number of buy-to-let investors are transferring assets into cryptocurrencies as they look to find more gains away from the property market.
While few brokers approved of the move their clients are making, most are wary parts of the UK - particularly London - are becoming less attractive prospects for property investment returns as buy-to-let growth stalls.
Ben Michaelis, who manages his own financial services and property-focused digital marketing agency, contemplated entering the buy-to-let space a year ago. Having bought his first house and with family and friends already landlords, the move to become a landlord himself seemed to make sense.
But Michaelis was put off by regulatory barriers, including the high levels of investment required for a buy-to-let mortgage to generate worthwhile returns.
With property producing average gains anywhere between 5 and 10 per cent a year, Michaelis said he was drawn to the minimum advised return of around 30 per cent to be made from cryptocurrency in just three to six months on less money.
“It was the realisation I would never have had this return from property,” he told FTAdviser. “I tried a stocks and shares Isa - it was ok, but it was nothing special. With crypto, it’s liquid, so you can withdraw your assets at any time. You can’t do this with property, there’s lots of factors to consider.”
Michaelis added: “Buy-to-let is a commercial operation, you have to run it like a business - and I simply didn’t have the time around existing work commitments to facilitate such a responsibility. Equally, I recognised assigning this responsibility to a letting agency would reduce my rental yield further.
“With crypto, I have a broker who manages my funds for me and takes a small percentage of my entry investment to the market.”
In the past five years, the government has made a series of reforms which have affected buy-to-let investors.
These include a 3 per cent stamp duty surcharge, more stringent affordability tests and reforms to mortgage relief.
‘Is it any wonder?’
In London, mortgage broker The Money Group’s buy-to-let business grew by 28 per cent in 2021 - the same rate it grew by in 2020.
“There’s no significant growth in London’s buy-to-let purchase market,” said Martin Stewart, a director of TMG, who said his firm was a “good litmus test” for what the London buyer was thinking.
“The barrier to entry is so expensive from a deposit and taxation point of view,” Stewart explained. “We've got one client looking at a minimum £200,000 deposit for a three-bedroom flat. Add a stamp duty bill to that, plus 3 per cent, and the fact there's no longer any bells and whistles in terms of offsetting interest payments against rental income, is it any wonder that people are looking at some property on the market and deeming it overpriced?