Buy-to-Let: Time to sell up?

Official figures show that prices increased by 4.8% in 2017, down from the annual rate of 7% the year before. At the same time, the number of house purchases fell by 7,000, marking the first drop since 2011.

Currently, house prices are 14 times higher than the average earnings in London, however, buyers are only allowed to borrow up to 4.5 times their income.

Additionally, following a stamp duty surcharge in April 2016 for landlords and second-home owners, demand for properties at the higher end of the market has dropped significantly.

Figures show that first-time buyers are hugely benefitting from incentives to get younger generations on the housing ladder following a 7.4% increase in first time buyers between 2016 and 2017 to 365,000.

However, according to the Financial Times, one in five buy-to-let landlords plans to sell up in 2017. There have been three problems facing the average buy-to-let landlords:

  1. An additional 3% Surcharge for purchasing second homes;
  2. The banning of upfront letting fees; and
  3. The changes to the tax treatment of buy-to-let investments.

This has resulted in a reduction in interest in Buy-to-Let Properties as well as an increase in sales amongst the lower end of the Property Market.

For many investors, this is also coupled with the threat of increased interest rates. According to Mike Heynes, head of private client at accountancy firm RSM, “even half a per cent movement in interest rates could mean that an investor is losing money.”

Many buy-to-let investors are in the market for capital growth rather than rental income, however, if an investor is investing with income in mind, then tax changes will reduce this. Unfortunately, should the buy-to-let investors decide to sell their properties, this could result in a crash in the Property market as people decide that Properties are not worth owning.

From July 2015, buy-to-let landlords can only claim mortgage tax relief at the basic income tax rate of 20 per cent rather than at the higher rate. This will be phased in gradually, tapering off in 2021.

In addition to this, the Labour government manifesto promise to introduce rent controls has caused significant worry to landlords.

Amongst a revolution in the sale of buy-to-let Property, there has also been a revolution in the rental market.

According to the Times, the rental market is going through a fundamental change. Last year, a record of £51.6 billion was paid in rent, double that of a decade ago, and the accommodation on offer is changing unrecognisably.

Modern rental developments are beginning to specialise in hotel-quality living, yet they also serve another purpose; they help to combat loneliness and depression, states Nick Whitten – the director of research at JLL, a Property consultancy. Flats in buy-to-rent schemes are often small, however, shared spaces are full of amenities.

An example of this is The Collective Old Oak in northwest London. This provides a private cinema, gym, sauna, spa, library, restaurant, bar and a ‘disco launderette’.

Buy to Let - Time to sell up?
Buy to Rent Properties

Rooms in such buildings start at £240 a week and include access and use of the on-site amenities.

The average Property rent in Birmingham is £953 per month according to Home.co.uk; however, savvy investors are providing luxury facilities to the masses for a £960 in central London.

According to Anne Ashworth at the Times, whilst this quiet revolution is going on, more people are interested in talking about how driver-less cars will affect the future. Despite incentives, there appears to be recognition that many people will not climb on to the housing ladder, leaving them dependent on the private rented sector; however, such curbs such as those above have left landlords significantly out of pocket, playing into huge corporate entities’ hands.

The government have shown significant interest in build-to-rent properties and have demonstrated this through tax and planning concessions, however, many landlords argue that they too should be able to play a role in the provision of housing for those who cannot afford Properties.

One argument is that buy-to-rent Properties provide better standards to tenants, however, pushing landlords out of buy-to-let Properties appears to cause significant friction across the housing market.

 

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