Home Residential PropertyBuy-To-Let The options set to reinvigorate the buy-to-let market for 2020
Property

The options set to reinvigorate the buy-to-let market for 2020

by LLP Reporter
2nd Mar 20 4:47 pm

The last few years have not been kind to those involved in the buy-to-let market. One needn’t look far to find evidence of this, as the outlook of landlords paints a truly dire picture.

Recent surveying discovered that almost one in four landlords were seeking to sell at least one of their properties, owing to suboptimal market conditions. Similarly, the same survey found that a third had seen their yields shrink in 2019, and a quarter believed that the trend would continue into this year.

Much of the blame for these declining prospects can be assigned to changing regulation. Citing macroeconomic worries, the Government has introduced measures to ‘cool’ the growth of the sector. This was carried out primarily through the reformation of the buy-to-let tax relief. Whereas a landlord could previously deduct the interest paid on mortgage payments from their rental income pre-tax, this has now been outlawed for 2020, leaving many with greater tax obligations.

Similarly, a three percent charge on stamp duty for second homes was brought forth in 2016, and the Prudential Regulation Authority introduced new underwriting standards for buy-to-let mortgages in the same year, mandating stricter affordability and rent tests.

This vastly reduced the appeal of the buy-to-let sector for numerous investors, and many amateur landlords – those who maintain one or two properties in their portfolio whilst drawing their primary income from another full-time career – have elected to leave the market.

However, the tide has begun to turn. Changes in the sector have created a plethora of opportunities for dedicated landlords to take advantage of. Despite the restrictions placed on buy-to-let, the demand for rental properties remains high and will continue to do so. Conservative estimates predict that upwards of half a million additional homes will be needed in the private rental sector by 2023, but with the new regulation driving hobbyists out of the market, the slack has been picked up by professional landlords.

This trend can be seen through macro-data. The number of properties owned by the average landlord rose to 1.93 in 2019 – the highest level it’s been since 2009. Similarly, the number of landlords who owned more than one home was 30%, a large-scale increase in both 2016 and 2009 where the figures were 21% and 15% respectively.

With the market now firmly composed of individuals viewing buy-to-let as a long-term investment, rather than as a vehicle for quick returns, lenders have chosen to adapt their approach. Owing to uncertainty in the economy and record low-interest rates from the Bank of England, many investors chose to utilise five-year fixed-rate mortgage products to provide stability. This has reduced opportunities available in the re-mortgage market, forcing lenders into a price war in house purchase borrowing.

Other companies have also introduced new lending products, recognising the new profile of landlords by offering features such as limited company buy-to-let mortgage, products aimed at those who own houses in multiple occupation (HMO) and those renting out on a short or medium-term basis. This growth is being driven by smaller, more specialised lenders serving the complicated needs of the professional landlord. Growth in this area is anticipated to continue, as the regulatory environment becomes more sophisticated, and the landlord needs to become more efficient to maintain their margins.

This opens up prospects for landlords. The emphatic result in the most recent general election has broadened the level of certainty that investors can have in the economy. However, with rates still remaining at historic lows, and competition amongst lenders remaining high, this is an ideal situation for further investment and portfolio extension.

Landlords interested in taking advantage should look beyond the boundaries of the capital for new investment, with regional locations like Birmingham, Leicester, Nottingham and Sheffield offering strong rental demand, ample yields and positive signs for the future. However, it’s also of the utmost importance that any potential investor carries out proper due diligence and research into their chosen area of investment, as rental yields will often not tell the full story. Just as important is the level of tenant demand and the average length of a void period.

With the market becoming ever more complex, landlords should also explore the benefits of using a property management service. Having a dedicated team of experts on your side can help you to prepare for and adapt to regulatory change, ensuring that you aren’t caught out. Property management companies will also allow you to minimise void periods by ensuring that your pricing and listings strategy is attuned to making sure that you maximise yields.

The past few years have been difficult for the average buy-to-let investor, with shifting government priorities making it uneconomical for many to carry on in the sector. However, with demand for rental properties still remaining strong, and political uncertainty cooling, significant opportunities for the dedicated landlord was created. However, only time will tell whether this positive trend will continue.

Leave a Commment

You may also like

CLOSE AD