Everyone in the industry it seems is wondering and speculating on the possible effects of the recent tax and other changes affecting buy-to-let investments. Like most changes involving government, the devil is in the detail, and we won’t know the full economic effects for some time, but we are all hoping things won’t be quite as bad as they seemed at first sight. The challenge is on to find strategies that will enable us to cope with the changes and still make good returns.
Our lead article here spells out some of the coming changes and their likely effects on buy-to-let investments and it ends on a rather optimistic note. Recounting some recent industry experts’ comments, which predict that there will inevitably be some losers, but that overall the changes are likely to bring a period of short-term disruption, before things settle down again as investors adapt.
Buy-to-let is still likely to be an investment that’s hard to beat for most people, even though we’re going to have to work a bit harder for our money. The new regulations – and there have been rather a lot of them during the course of 2015 and early 2016 – will certainly present a challenge to many small-scale landlords, and some letting agents, especially those who don’t keep themselves up-to-date with these changes.
At the end of the day we are all in this business to make money, whether this is a decent yield (income) in the short-term, decent capital gains in the long-term, and more likely a combination of the two giving you a good total return.
Property investment is long-term game and should always be seen as this. It gives you the security of knowing that bricks and mortar will almost always appreciate in value over time and unlike the stock market, it’s almost impossible to lose all your investment. But regulatory change – regulatory risk – is something we just have to cope with, we just have to find strategies which work in the new environment.
Given the high cost of housing there is no sign of rental demand declining for the foreseeable future, indeed, according to a recent Ipsos MORI survey commissioned by Shelter and British Gas three-quarters of young Britons believe they are unlikely to ever own their own home and instead are reconciled to being tenants for the rest of their lives.
The younger generations are saying that despite government schemes to help them on to the property ladder, they are finding it’s lot tougher than it was for their parents’ generation. The research included 1,906 people aged between 25 and 34 and found that although a big majority wanted to live in their own home, they recognised this was unlikely as they are renting.
There will be a reduced supply of rental housing and higher rents after the April tax hike for buy-to-let investors, that’s are according to the Association of Residential Letting Agents (ARLA). This situation is likely to persist and can only bode well for the future of small-scale buy-to-let investment.
The latest English Housing Survey shows there were something like 4.6 million households renting privately in England, very nearly 20% of all households, in 2014-15. This is predicted by property consultants Savills to grow to approaching 25% of all households by 2025. There are now more young people renting than ever before. In 2004-05, 24% of the 25 to 34 age group lived in the private rented sector (PRS). This figure had risen to 46% by 2014-15.
George Osborne’s tax raid on landlords, the coming buy-to-let mortgage restrictions, and increasing regulation of the sector will no doubt “cool down” the investment bonanza that’s been buy-to-let over recent years, but it will not kill it off the PRS – it is far too big and important to the economy for that.
Tom Entwistle, Editor