Buy to Let Market Update

Posted 24 May 2016 by Neil Moore

Many people are asking me if buy to let is now effectively dead following the introduction of the additional 3% Stamp Duty on purchases and the changes to tax legislation impacting landlords.

Looking at the market, there was a surge of buy to let purchases prior to 1 April 2016 due to the change in Stamp Duty. However, these smaller investors are being replaced by high net worth investors who are purchasing more stock as the smaller investors take a step back or sell up.

The RICS is forecasting property values will increase by 4% a year over the next 5 years so for a landlord with a good sized portfolio, the equity growth on the properties should show a healthy return – probably higher than the return from having the cash just sit in the bank!

Yes, landlords will need to give themselves a ‘cushion’ to take account of tax changes and in case interest rates start to rise (a strong possibly if the UK votes to ‘Brexit’ in June). They are facing lending restrictions but a serious property investor is in the market for the long term. They do not purchase a property purely for the monthly rental income, they invest in a property yes for a good yield but also for the overall return on investment – what the property will be worth in the future when they come to sell, perhaps in 20 years’ time.

With Land Registry data showing house values in Sussex have risen by an average of 24% over the past five years (December 2010 v December 2015) property is a sound investment providing you are prepared to sit tight and sell when the time is right – attitude is all important for buy to let investors now.

Some landlords are viewing the 14 different tax changes focused on the buy to let sector as an attack on them. Other landlords are looking at investing in areas with good job prospects and excellent transport links, knowing properties in these areas will be attractive to tenants (and purchasers when they come to sell).

ARLA (the Association of Residential Landlords) predicts rents and the letting sector itself will increase by 2025 with research conducted by the Centre for Economics and Business Research suggesting rents could increase by as much as 27% in this timeframe. The RICS has stated it belives rents could increase by 5% and prices by 4.7% over the next five years.

So, I believe that the rest of 2016 will offer fantastic opportunities for astute buy to let investors. It will be critical to make use of the market intelligence available as investment decisions need to be very considered due to the tax rises and lending restrictions. If you would like advice on your rental portfolio and possible investment properties, please do contact me on 01403 248222 or neilmoore@guyleonard.co.uk and I will be happy to help.

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