Earlier this year, the Government unveiled its Levelling Up White Paper which it hopes will transform the UK by redistributing prosperity and opportunity.
The dossier seeks to narrow the gap in life expectancy between the richest and poorest areas whilst also regenerate the centres of 20 towns and cities, starting with Wolverhampton and Sheffield, backed with a £96 billion war chest.
It also sets out a new devolution framework that will see local leaders in the poorest areas getting ‘London style’ powers and a mayor to ‘allow communities to take back control’.
Given all this, is now a good time for landlords to invest in buy-to-let in these regions?
And how is the Government proposing to fix geographical disparities and how will their plans affect landlords now and in the future?
Our data reveals that one in five of our newly registered purchasers in the North and Midlands are buy-to-let investors, compared to one in ten in the South.
Investors are recognising that yields are more robust in the North, where they are achieving over 6% and up to 9% in some cases.
Levelling up in these areas will drive these yields up. But the South has historically always been good for equity growth, so landlords should consider balancing their portfolios.
Devil in the detail
At LRG, we welcome the White Paper. The Government’s plans to deliver private rented homes and improve the buying and selling process is good news for the housing market.
The White Paper is also welcome news for local markets that have historically been underfunded, however, the devil is in the detail and how these plans will be put into action remain just proposals.
Its ambitious devolution proposals will see a shift of power and money away from Whitehall to the North, Midlands and other areas overlooked and undervalued in the past.
This means tenants will benefit from more jobs and higher wages, and see landlords achieve greater income.
However, if on the one hand levelled-up towns and cities are well managed by their new mayors it could represent a boon for landlords. But if they are poorly managed, investors could lose out.
Under the White Paper proposals landlords will no longer be allowed to evict tenants using Section 21 notices and will only be able to end tenancies legitimately.
Landlords will need to rely on Section 8, meaning they will need to provide an evidenced reason already specified in law.
But this is not such a big deal as some media outlets suggest. In our experience, landlords rarely terminate tenancies with good tenants and when they do it’s usually because they want to sell up or move back into a property.
At LRG, around 90% of tenancies are ended by the tenant.
Everyone wants to see a crackdown on rogue landlords to create safer and securer rented homes. But extra standards are meaningless unless they are enforced. But many councils don’t have the resources to do that.
We believe the Government should focus on enforcing existing regulations and not add to the legislative burden for landlords.
A better way would be to amalgamate existing legislation and apply it to properties, not landlords in the style of an MOT or ‘decent homes’ declaration.
This would bring together gas and electrical safety plus a suitable habitation standard for homes all displayed in a familiar format.
The Government wants to turn ‘generation rent’ into ‘generation buy’, and have promised that by 2030 “renters will have a secure path to ownership”.
Ministers have pledged support for affordable homes in areas outside London/South East and still intend to deliver 300,000 new homes every year in England by the mid-2020s.
But there are not enough homes being built to deal with the demand and achieving these targets will not happen without the release of green belt land.
Therefore, we believe there are opportunities for landlords looking to invest in buy-to-let within the North and Midlands.
As with any investment, we recommend you do your groundwork.
- First, decide whether your investment drivers are yield or equity. Don’t be afraid to look further afield for a good buy-to-let opportunity, especially if you want to supplement your income.
- Purchase your property at a competitive price but don’t be too constrained by cost. A few thousand pound on either side of the price is not going to make a big difference in the long term.
- Set up your investment tax efficiently. One way investors can allay some tax changes is to invest via a limited company. Under this model, landlords can still obtain full mortgage interest relief and reduce their tax bills.
- Have one eye on future legislation, such as changes to MEES and energy performance certificates (EPCs) in 2025.
- There are also regulatory hoops to jump through. For example, landlords need an EPC with a minimum rating of E, electrical safety checks are required every five years, and gas safety checks are required each year. Regulation is a huge factor to consider, and it’s constantly changing
- Decide if you want to be hands-on. Buy-to-let investment requires time and effort, both in researching and buying a property and managing the investment thereafter. You must be willing to go through the lengthy buying process and decide both whether to furnish the property or not and whether to instruct a letting agent to manage it.
- If you decide to go it alone, always ensure you do your tenant’s due diligence.
- With a squeeze on affordability and inflation surging towards 10%, rent arrears are likely to pick up, so tenant references with a clear view of their income and historic rental payment are a must.
At LRG we focus on transparent, verifiable electronic checks of income and rent payments taking a secure view of these funds as they pass through an applicant’s bank account, in addition to a full credit check.