George Osbourne’s new budget has put a rather hefty spanner in the works for anyone looking to invest in a second property for buy-to-let purposes. The new buy-to-let tax makes it a lot harder for landlords and those owning second homes to make profit. The new rules introduced mean anyone buying a second property with the sole purpose of renting it out (it’s not their main residence) will have to pay an extra 3 percent in stamp duty. This is likely to hit investors hard, with research indicating that the average landlord will be losing the equivalent of a year’s income. For example, a buyer of a home worth £400,000 will be taxed £15,000 upfront for their investment; this will make a huge dent in any returns generated, compared to the £3000 they would have previously been taxed. However, there are still ways to invest in property and generate ample profit; any one investing in a second property should aim to cut out the middle man and hence side-step the new charge in one swift move.   Peer-to-peer Companies P2P property companies enable investors to cut out the middle man; in layman’s terms, they are specialised companies which allow investors to supply money upfront for property loans and mortgages hence allowing the mortgagee to avoid the banks and the new tax that goes with them – whilst gaining interest. Supporters of this new method to do buy-to-let say that not only is it a hugely profitable venture for Investors (they get returns of around 5 percent) but they also get to cut out a load of the inevitable yet unnecessary landlord hassle; they will avoid having to argue with difficult tenants or having to deal with changes to property tax. Further benefits include being able to place investments into the newly created flexible ISAs, which essentially means up to £15,240 of a return, flow into investor’s pockets completely tax-free.   Professional Opinions Due to all the recent changes in stamp duty and tax relief, wannabe landlords are facing pretty insurmountable sums; the fact of the matter, is it’s just not economically viable to be a first-time landlord anymore. However, people still want to invest in property, and these specialised companies allow people to continue to profitably do so. Ian Thomas, director and co-founder of one of these peer-to-peer companies, argues that investing in property cuts out all the negatives of being a landlord and provides positive returns. “You don’t have to worry about Stamp Duty, Capital Gains Tax, or gaps in tenancies. And you’ll never get a call from a tenant in the middle of the night about a broken down boiler. “Instead you do get to enjoy a great, consistent return, and can diversify across a range of different properties much more cheaply than if you wanted to build your own traditional property portfolio.”   Potential Issues Borrowers need to ensure that they will be able to repay their loans, and if not, the peer-to-peer platforms need to be able to reimburse investors. All loans are secured against a UK property, meaning that the companies are able to repossess a property if a borrower is unable to keep up repayments. Some experts have expressed caution about investing in property through peer-to-peer sites; they claim it’s extremely risky for investors, as if the peer to peer site goes bankrupt then cash will be lost with no insurance – money isn’t secured by the Financial Services Compensation Scheme. Finally, borrowers who decide to use peer-to-peer often come to this decision due to rejection for bank loans; suggesting they are higher risk and are more likely to default on payments. This is obviously less often the case with the regular buy-to-let mortgages. Danny Cox, chartered financial planner said: “Most people have exposure to residential property through their own home, so firstly investors should be questioning whether they need more of the same asset class. P2P property loans are amongst the higher risk of personal peer to peer lending, since these are, in effect second mortgages and not investing in property at all. Borrowers have gone done this route as they are unable to borrow more via their mortgage themselves. And there is always a good reason why a bank or building society won’t lend more.”   Conclusion In conclusion, all investors can do is tread carefully when it comes to parting with their money, especially in light of the incoming property dip Britain is predicted to encounter. This is likely to put borrowers under financial pressure, therefore the real test for these firms is how they react to the financial downturn.   By Leila Glen, for Savoy Stewart.