As originally published in
Financial Reporter
There are few areas of the market that seem to attract as much speculation as Buy to Let. Despite the fact that private rental accommodation accounts for more than a fifth of the UK’s total housing stock, the arrival of any new piece of regulation or tax change seems to trigger a wave of commentary hailing the beginning of the end for the investment.
It is true that the tax changes introduced in 2016, which saw a 3% surcharge added to the stamp duty on a Buy to Let purchase and tapering of relief on mortgage interest payments, discouraged a lot of landlords from entering the market or growing their portfolio. In fact, according to research by Hamptons International, landlords have bought 26% fewer properties in the last five years than they would have done had the tax changes not been introduced. Hamptons says that landlords have bought around 700,000 properties since April 2016, which they suggest is 250,000 fewer than they would have if the tax regime had stayed the same.
This, however, is not bad news for those landlords who have remained committed to the market. Demand for rental property continues to grow and so any restriction of supply merely underpins rental prices.
The latest data from Rightmove shows the biggest annual and quarterly increases in rents the property website has ever seen. Rightmove says that national asking rents outside London have jumped by 6.2% year on year to reach more than £1,000 a month for the first time on record. London is the only region where rents are lower than this time last year, but the capital has bounced back, with rents increasing this quarter for the first time since before the pandemic. The website adds that tenants are being found for properties at the fastest rate on record, with the average time taking just 21 days, and that this is leading to a 36% annual fall in the number of available rental properties.
So, where does this leave the outlook for Buy to Let? Landlords have undoubtedly had to absorb a financial hit over the last years, with many tenants unable to meet their full rental commitment, but as we emerge from the pandemic, it’s hard to argue against the potential for a Buy to Let investment given the imbalance between supply and demand. One way that investors are continuing to benefit from the market, whilst also mitigating against increased costs is by diversifying their property portfolio. Investments such as HMOs, multi-unit blocks and holiday lets can deliver higher yields than a property let on a standard AST and we are seeing increasing demand from brokers whose clients are accessing these investments for the first time.
Increased regulation and taxation mean that Buy to Let may have not grown as much as it could have, but less is proving more for many landlords, who are benefiting from increased rental growth and exploring more diverse and profitable portfolios.
Barry Searle, Managing Director of Property at Castle Trust Bank