Does Brexit turmoil offer buy-to-let investors the perfect buying opportunity?

Pawns decorated with the UK and EU flags
Pawns decorated with the UK and EU flags

Brexit! What is it good for? Leavers and remainers are both struggling to answer that question right now but I’ve finally found something. The current turmoil may offer a chance for buy-to-let investors to pick up a property at reduced price, while share investors could also find bargains in the FTSE 100.

Slowing down

House prices have been relatively resilient since the referendum but now they are beginning to soften, with £1.6bn wiped off values over the past year. Buyers, sellers and investors are all adopting a ‘wait and see’ approach, as Brexit plays out, the global economy shows signs of fatigue, and interest rate rises potentially loom.

London prices are down 5% in a year as foreign investors are driven out by uncertainty and higher property taxes. The RICS says pessimism intensified in November and UK sales and prices will fall over the next three months. The average home now takes four months to dispose of.

Opportunity knocks

This is a blow for FTSE 100 housebuilders, whose share prices have fallen sharply, but their struggles may be good news for investors, because today’s low valuations could offer the opportunity of a lifetime. It may also be good news for those who are still keen on investing in buy-to-let.

That the last two or three years have undoubtedly been a disaster for buy-to-let, as the Treasury’s tax crackdown has driven up costs and slashed post-tax profits in a deliberate push to tilt the balance in favour of first-time buyers.

Second chance

The 3% stamp duty surcharge on second homebuyers and investors, combined with the phasing out of higher rate mortgage interest relief, has destroyed margins. You can’t do much about the second of these, but if you could get, say, a 5% or 10% discount on the purchase price, that will more than offset the extra stamp duty.

So if you are still tempted by buy-to-let, your chance may not have passed after all. As Brexit uncertainty looks set to drag on to the 29 March deadline for leaving the EU and beyond, you might pick up a bargain in the months ahead.

A better option

You should first decide whether buy-to-let is really something you want to do. As my colleague Royston Wild points out, enthusiasts have been hammered over recent years and it may be better to look at stocks and shares instead.

There is certainly a buying opportunity on the FTSE 100 now, with the index plunging from a peak of 7,877 in May to 6,826 today, a drop of 13% in just over six months. This means it now yields a whopping 4.37%, almost as much as you can get on a buy-to-let property, but with less bother. Trading at 15.63 times earnings, it isn’t overpriced either.

If you pop a FTSE 100 tracker inside your annual tax-free ISA allowance, you don’t have to worry about paying income tax or capital gains on your returns either. Plus there is no bother with tenants and all that nonsense. Now may be a buy-to-let buying opportunity, but the FTSE 100 could be a better one.

Are You Prepared For Brexit?

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.