Buy-to-Let Investment Returns:
This is the conclusion of a recent report – the bi-annual “Rent Check” report from BDRC Continental in collaboration with Allsop LLP is a unique measure of the rents being agreed by landlords for Private Rented Sector (PRS) tenancies across England and Wales. This latest research tracks 1,557 landlords in Q3 and Q4 2016 providing a statistically robust overview of the rental market – it covers 11,595 properties.
The figures obtained for the last six months show a marked uncertainty continuing in the rental market as landlords come to terms with the new taxation and other regulatory rules, and although confidence remains “well below the long term trend”, as recorded by previous Rent Check reports going back to Spring 2013, the Spring 2017 report still projects an optimistic message for the future, showing that despite the obstacles, landlords’ investments returns from buy-to-let are projected at well above alternative investment opportunities:
“In a housing crisis which is not showing any signs of going away, the role of residential investors and smaller scale landlords has been an issue of growing controversy, contention and debate for much of the last 18 months.
“With an increasingly stringent legislative framework, the requirement for additional compliance checks and a worsened taxation position (both on entry with a surcharge in SDLT on second homes and on income via a reduction in mortgage interest relief), the investment motivations and expectations of residential landlords are being fundamentally challenged at a granular and ideological level,” says the report.
The authors make the distinction between “market value” and “worth” to the individual of a particular investment opportunity, given their own circumstances; chiefly the tax band they are in, but also alternative earnings, and other factors such as shared ownership with a spouse etc.
For those landlords in the basic rate tax bracket, tax relief will continue the same for all their mortgage interest payments, thus ‘worth’ will differ between different investors at each tax level.
For comparison and insight the report provides figures for the general mix of property types in the PRS, according to the English Housing Survey, average property values in each region (calculated against gross yields provided).
(Source: BDRC Continental / Allsop LLP)
So, given that landlords are overcoming their doubts and confidence is still increasing in buy-to-let investment, despite the legislative changes, the report’s estimate of future returns for investors in terms of individual ‘worth’ using BDRC Continental and based on Office for Budgetary Responsibility’s (OBR) forecasts for national wage and house price growth, these returns look highly respectable in comparison to alternatives.
The report concludes that private rented housing still has a crucial part to play in solving the UK’s housing crisis. That the emerging institutional build-to-rent sector is encouraging in terms of new supply, but given the scale is unlikely to be sufficient to provide all the quality housing needed across the whole of the UK.
There will, it seems, still be room, depending on individual circumstances, for the small-scale buy-to-let investor who are selectively looking for a safe investments that offer very respectable total returns over the long-term. Indeed, however much home ownership is desirable, with an increasingly flexible and global economy this is not immediately compatible with fewer properties available for rent.