Published: 19/12/2017 By Paul Simon ResidentialBuy-to-rent landlords have been the target of much legislation in the past couple of years, and it is likely that the market will never be the same again. Without doubt, landlords with larger portfolios have weathered the storm a lot better than those with just one or two properties. Increasing stamp duty on secondary homes and phasing out full tax relief on mortgages were useful tools for the Treasury to raise funds, but after that, the motives remain cloudy. There were suggestions that with landlords selling up there would be more properties for prospective buyers, but this hasn’t been the case. In more desirable areas, tenants can afford the rent but could never afford to buy the property.
There are also lifestyle issues. Many people rent by choice and unwilling to make a commitment. Renting offers flexibility for people moving location, and is usually preferred by people experiencing social changes such as divorce. In fact, the Royal Institute of Chartered Surveyors has predicted that 1.8m new rental homes will be needed by 2025. Already, the total amount of rent paid to private landlords is more than double the amount of mortgage interest paid by homeowners. The government’s recent focus is on increasing the number of houses built each year. This is entirely laudable, but measures to accelerate housing completions to 300,000 a year will take years to effect. And even measures to help first-time buyers are unlikely to make houses in the south-east of the country really affordable, which means that renting will be the obvious option.
Landlords have adapted in some ways to the more regulated regime by focusing on areas where yields are more attractive. This means moving out of London and the south-east, and into areas in northern England where house prices are that much lower. According to Hometrack, the gap between average earnings and house prices in London reached an all-time high of 14.5, whereas in cities such as Glasgow, Liverpool and Newcastle, the ratio remains below the 15-year average, with all at less than 5.0. The Royal Institute of Chartered Surveyors has predicted that1.8m new rental homes will be needed by 2025
It’s not all plain sailing, though, because applying for a new buy-to-let mortgage from a high-street bank is being made more difficult as a result of stricter lending requirements. However, remortgaging on existing properties has been brisk so that in the past year a record 65 per cent of landlord purchases have been made in cash. More has been spent in cash in the past year than at any year in the past decade. And around three-quarters of properties bought in northern England were paid for in cash while London was the only region where buying with a mortgage outpaced cash buyers.
The buy-to-let landlord is still attracting attention from the Treasury because just recently the capital gains indexation allowance on an asset such as property has been removed. This means that any capital gains tax burden cannot now be reduced by adjusting the gain for inflation. There is one piece of good news, and that is the consultation on longer leases. These would be welcome all round because it will provide landlords with greater earnings visibility and also provides greater peace of mind for tenants. Perhaps the major development could be growing interest in the build-to-rent market. Institutional funds, starved of a decent return from government bonds, are now percolating into the rental sector. However, it’s early days, and if demand for rented accommodation is set to continue growing there will still be a place for the private landlord. However, professional landlords have built their property holdings over a number of years, with many established as companies which carries numerous tax advantages. For the newcomer looking to buy just one property, the barriers to entry may be just enough to make many potential entrants think again.
DISCLAIMER: The news and research in the above article do not represent necessarily either the views nor should they be seen as a recommendation of Paul Simon Residential Sales.