Is buy-to-let past its prime?
PAUL HOWELLS - ACCUMULATE CAPITAL
Until it expires on March 31st, 2021, the stamp duty land tax (SDLT) holiday will continue to control the direction of the UK’s property market and bolster house price growth.
Prospective buyers across England and Northern Ireland will be keen to ensure that their transactions are completed before this key cut-off date, potentially saving themselves up to £15,000 through the holiday. So far, the SDLT has been a success, in part due to the fact that all buyers can benefit from it - including both prospective and established landlords.
But, it’s important to remember, market activity measured through transaction numbers may not be telling us the whole story. Although activity continues to stay high, itself facilitating an 18-year-high in the rate of house price growth, some property investors remain disenchanted with the buy-to-let (BTL) sector due to ever-increasing regulations.
Accumulate Capital were aware of this trend back at the beginning of the year, commissioning a survey in February to track landlord sentiment towards the current state of the BTL market. What we found was that among the 750 landlord respondents, close to two thirds (63%) were actively deterred from considering new BTL options due to new regulations aimed at landlords that were being implemented as part of the 2020/2021 financial year.
Whether it’s mortgage interest tax reform or changes to private residence relief and amendments to Section 21, regulation in the private rental market seems to be focusing on landlords.
As a result, 72% of the property investors we spoke to in our aforementioned survey believed such regulation measures had made life unduly difficult for landlords. Perhaps more worryingly, of those who planned on selling property in 2020, 61% admitted it was purely in response to the increased taxes and regulations they faced in the BTL market.
Obviously, regulation is a key part of ensuring everyone’s interests are protected in a functional market. Nonetheless, ever-encroaching regulations without a unified strategy will ultimately serve to frustrate and place undue pressure on landlords. Ultimately, this could result in landlords deciding to sell their BTL investments.
Of course, Accumulate Capital’s survey was conducted before we fully understood the ramifications of COVID-19 on the global economy. So, now that we’ve experienced life under lockdown, how have landlords been affected by COVID-19? Has their situation changed at all?
Adapting to the new normal
The UK’s rental market was shaken to its core by COVID-19. Lockdown compelled a significant proportion of the workforce to work from home. As a consequence, many professionals are seeking larger properties outside of London – as recent Rightmove figures confirm. As a result, since June the number of new lets in London has been down 25% every month when compared to 2019, according to LonRes. What’s more, the lets that are advertised have been forced to slash rental prices by up to 20% to attract new tenants.
Given London’s previous worldwide reputation as a premier BTL locale, where investors can enjoy consistent capital growth supplemented by rental income, these figures demonstrate that the rental market is indeed in transition. In conjunction with the issues surrounding increased regulation discussed above, it’s easy to see why the National Residential Landlords Association found that two thirds (66%) of the UK’s private landlords expected to be negatively impacted by the pandemic. This is despite efforts by central government to protect homeowners.
So, given all of this, is it still worth becoming a private landlord through the SDLT holiday? Or are alternative property investment avenues the way forward?
Despite the comparative discounts on offer through the SDLT holiday, the policy does nothing to alleviate landlords from the burden of ever-more-stifling regulation they’ve been subjected to in the last five years. With so much uncertainty hanging in the air regarding COVID-19, landlords also have to manage a sudden drop in demand for rental property or a situation where their tenants might not be in a position to make rental payments due to redundancies and financial hardships.
Collectively, this might mean that current and prospective landlords look beyond the BTL market in favour of other property investment schemes. Given the steady house price growth we’ve seen in 2020, real estate is well-positioned for those wishing to hedge their assets against any further COVID-19 related market uncertainty over the coming months.
Options such as property development financing schemes or debt investment, then, are likely to grow in popularity over the coming months – in my own opinion.
After all, Accumulate Capital’s February survey showed that over a fifth (21%) were already considering such avenues before lockdown’s impact on the UK’s property market. In many respects, COVID-19 is only like to increase this demand. After all, investors will always seek safe-haven assets in times of pandemic, and property can provide the security and resilience they are after.
The challenge for them is finding a creative way of investing their capital into bricks and mortar, and alternative avenues such as property development finance could be the solution.