Things to consider if you’re thinking about investing in property in 2023

With the potential for long-term growth and regular rental income, property has long been a popular option for investors looking to protect their savings against inflation.

It’s often seen as a dependable investment choice – after all, people will always need housing, and demand continues to be strong.

But with recession around the corner, as well as regulatory changes to think of, it’s important to weigh up the risks of property investment and make an informed choice. We’ve outlined some key points to consider.

Economic uncertainty

Nobody can predict with certainty what might happen to the housing market this year. While mortgage rates are now falling after hitting record highs at the end of 2022, and some reports suggest house prices have stalled after several months of decreases, it’s still an uneasy time for anyone considering property investment.

Many experts expect house prices to decline in 2023, as the cost of living crisis impacts affordability and dampens demand. But predictions vary as to how dramatic this decrease will be.

The Office for Budget Responsibility has predicted an overall 9% drop in house prices between Q4 2022 and Q3 2024, while banks and estate agents are predicting decreases ranging from 2% (according to Rightmove) to 8% (according to Halifax and Lloyds).

By comparison, house prices fell by 15% to 20% in the wake of the 2008 financial crisis, according to some estimates.

For those still willing and able to invest in property this year, a downturn could come with opportunities. Those struggling with high mortgage rates will be looking for an exit, allowing investors to take advantage of lower prices and the potential for growth in the long term – assuming house prices recover in the next few years.

You may have some competition, however: recent research by finance broker Finbri suggests 45% of landlords are thinking of investing in property in 2023.

Tax and regulation

Another important consideration is the tax and regulatory landscape. Buy-to-let landlords have faced increasing regulation in recent years, as well as changes to property tax that have pushed many to reconsider their investments, and there are more on the horizon.

Notably, the tax-free threshold for capital gains tax (CGT) is set to decrease from £12,300 to £6,000 in April 2023, then to £3,000 from April 2024. CGT could be due when you sell a property you’ve made a gain on, and while the longer-term future of the threshold remains to be seen, this could have a major impact on your tax bill whenever you sell your investment.

Stamp duty land tax is also due when you purchase property in England or Northern Ireland (with other forms of land and property tax due in Scotland and Wales). The good news for buyers is that last year, the nil-rate threshold for this was increased from £125,000 to £250,000, and this increase is set to stay in place until 31 March 2025.

People purchasing additional property will still have to pay a 3% stamp duty surcharge, however, which has been in place since 2016.

If you earn rental income from your property you’ll also need to think about the implications this will have for income tax, as well as taking into account corporation tax if you own the property through a company.

And if you’re new to property investment, it’s essential to get up to speed on the rules, regulations and duties that apply to landlords. These have been changing, with Parliament due to vote on a new Renters Reform Bill before May 2023, so be sure to stay up to date on your obligations.

Limited company or personal ownership?

In light of those tax changes, investors will need to think carefully about the most appropriate way to invest in property: in their own name, or through a limited company.

Increasing numbers of landlords have made the decision to incorporate in recent years, but there are various factors that might affect this choice. For the best outcome, it’s best to speak with a professional.

Do your research – and seek advice

This leads us to our final point. With so much economic uncertainty, as well as political change, there’s no one answer to anyone wondering whether property investment is a good idea.

The best choice will depend on your financial circumstances, appetite for risk and ability to withstand any losses, as well as specific factors like the type of property and the location you buy in.

Carrying out thorough research, and talking through your options with a professional, is crucial.

At Libra, we’ll talk through your property questions in the context of your wider personal financial and tax position, and work with you to develop a plan in line with your goals.

Talk to us about property investment and your personal tax plan.

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