The biggest casualty of the latest mortgage and property crisis appears to be the small buy to let landlord. Many have low yielding properties that haven’t increased much in value in recent years and only made profit because rates were so low. I just quickly googled ‘buy to let’ and all the news results were negative. The political and economic arena for small landlords has changed massively in recent years. There are many factors that have huge impact on both new and existing landlords;
· Higher stamp duty on purchase
· Less tax benefits for rental income
· More regulation, rules and expectations of landlords
· Property prices haven’t done as well in recent years
· Flats particularly aren’t doing well
· It’s likely to become much harder to evict tenants
· Mortgage costs have increased massively – average buy to let interest rate is near 7%
· Mortgages are now subject to affordability so the amount of lending landlords can get is decreased
· The cost of builders and materials makes maintaining multiple properties costly
· Property is inefficient for inheritance tax and passing on wealth to loved ones
HOWEVER, the effect of all the above is a mass exodus of landlords. I can see it in my client base. Most are selling. This will create a huge opportunity for the landlords that are left as demand far outstrips supply.
· Rents are spiralling to highest levels ever seen and will continue to
· Will be easy to take your pick of tenants and keep properties rented
· House prices will rise on properties eventually once the economy recovers
· Regulation will make landlords more professional and efficient
· It is likely that government will have to back track on some of the above regulation and taxation once a rental crisis really takes hold
· Mortgage costs will come back down in the medium term
· There is potential to expand profits further with growing HMO and short term rental markets and other innovative ways of renting property as tenants look for alternative smaller renting options
One point that I saw being made recently was that in the future it will be so much harder to enter the buy to let market. Because of this competition won’t return so rents will stay much higher and there will be an abundance of tenants. Secondly if you leave the market, it will be much harder to ever get back in to having multiple properties again. The cost of additional rate stamp duty to purchase and the lack of mortgage affordability means you would need huge sums of money to buy a new rental property.
Other things to note – flats are just not selling at the moment. Post covid people that can buy want houses with gardens. There’s no first-time buyers, no buy to let investors purchasing and they are the people that typically buy the smaller single let properties that are coming on to the market. Considering all of that the selling market is dire - anyone that does come out of the woodwork to buy knows they can offer 20% under and more. This position is only likely to worsen for the rest of this year. So lastly, consider whether selling at the worst time is also the right thing to do (and don’t forget your capital gains tax bill!).
I have no answers – just info. Is there an argument that if you’re in you should stay in? That’s down to your personal circumstances but I just wanted to give you some food for thought. My answer is always do the numbers. It’s business! Work out your costs and returns and find out your yields – it’s amazing how many buy to let owners have no idea if they have a good investment or not. If you’re dealing with all the stress of tenants to make 2% on your money maybe it does make more sense to sell and invest in something with less commitment and more return. If you can make it work then you could capitalise on increasing rent and much more demand for your property.
