Hamptons International Research estimates there will be six million households renting by 2025. We have examined some of the changes in taxation on rental income previously in our blog. With the continued growth in demand for rented property supply needs to keep pace. So, what does the future look like for the buy-to-let landlord?
The market continues to attract new investors who took out 5,200 buy-to-let purchase mortgages in February 2018, according to figures from UK Finance, and the market continues at stable levels. One aspect of the market that is relatively new is “build-to-rent”, properties specifically designed as rented homes with the target customer being the landlord. This area is growing quickly as interest from investors and tenants grows. Homes within these schemes attract a rental premium of up to 25% above an existing flat in the private rented sector, or 11% above a new build flat.
We last discussed the taxation changes for landlords in August 2018, and the story remains the same. While much advice centres on the average landlord, there are many investors outperforming their peers. A landlord’s yield is the product of both market rents and house prices in an area. The return a landlord can expect depends very much on how well they negotiate when buying and letting a property. The biggest drag on many buy-to-let landlord’s investment returns is the void period. A time when you don’t have anyone in the property. Good tenants who want to stay help avoid this – and if they move on they may even recommend your property to someone they know. This means that selecting an agent to market the property or renting the property out yourself is an important choice. You can make more money by doing it yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs.
The growth in demand for rented homes is being driven by long-term structural shifts in demographics and the housing market. House prices consistently growing above incomes has raised the barrier to entry for many people, driving a steady decline in home ownership and growth in demand for renting. The performance of property as an investment has also discouraged owners from selling surplus property. And, a decline in social housing has seen more tenants on housing benefit, seeking accommodation in the private rented sector. According to Hamptons International this means that government policy will need to shift in favour of the private landlord, who is seen as critical to the continued supply of homes to the sector.
Investing in buy-to-let property is not a get rich quick scheme, but a long-term investment that can pay off well both in terms of income and capital gains. One advantage is that you cannot buy an unloved investment fund and set about renovating it and adding value yourself, where you can with a house or flat. When planning the borrowing for your property portfolio it pays to take advice from an established company. At Spot On Mortgages we will be happy to assist you. Get in touch to discuss your plans.