22:38 PM, 15th November 2016, About 6 years ago 3
The cost of long term fixed rates is about half of what they were at the lowest point whilst I built my own property portfolio.
Newcomers to buy-to-let will not be affected by tax changes on mortgage interest relief because they will buy in a Limited company from day one.
Tenant demand has never been higher.
Tenant referencing and rent guarantee insurance has never been better.
Newcomers will be clobbered with increased SDLT and that is definitely a drawback. However, compared to two or three decades ago the availability of information is now infinitesimal so that should easily save them more than the 3% additional stamp duty.
Many existing landlords are selling up due to the tax changes affecting them. Newcomers are unlikely to buy as many properties as existing landlords are selling because buy-to-let is no longer as fashionable as it was in the late 90’s to 2009. The net effect will be a reduction in supply of rental property whilst demand continues to increase. The outcome of this is inevitable; rents will rise at a far higher rate than existing landlords will have experienced over the last two decades. The fact that buy-to-let isn’t as trendy as it was means that Newcomers will not be as likely to buy into investment ghetto’s (off-plan developments) where they are all handed keys and competing to let the same properties to the same tenants at the same time.
The existing landlords who manage to ‘stay in the game’ will also be increasing their rents in line with demand. In part this will be due to necessity to fund their increased tax liabilities or to recoup their costs of incorporation. These rent increases will solidify the rental yields for newcomers.
The new lending rules will ensure that new landlords are not just ‘get rich quick’ wannabes. This can only be good for the industry as a whole. The stronger loan books will attract more institutional investment and the competition for securitisation bonds will intensify. This will drive lending margins down.
Property prices over the next 10 years will be a bit wobbly in comparison to previous decades as supply and demand for properties for sale inflate and deflate like a breathing lung. There will be several factors affecting this including volatility in currency and foreign investment and tenant demand which may rise and fall at times as a result of Brexit and associated immigration policies. Longer term, net immigration and hence increasing demand for UK property is inevitable.
Those landlords who incorporate will have exits routes most of us ‘old-school’ landlords will never have considered. For example, buying and selling shares in established property investment companies might well appeal to investors of the future as they will avoid SDLT completely on that basis. Furthermore, the rise of Crowdfunding structures may well provide partial exit routes and alternative funding. Peer to peer lending could also become a major factor. The landlords of the future may even get bought out by larger institutional investors. Think back 30 years and that’s exactly what happened to butchers and bakers. Many of the best of them were swallowed up into the supermarket system. Will we see that in the PRS?
The basic fundamentals of buy-to-let have not changed. The value of borrowed money reduces over time in real terms because rents and capital values will rise over the long term, thus magnifying gains because they apply to the entire investment INCLUDING borrowed money.
My concluding thoughts are that constant change is here to stay but the basic fundamentals never change. We cannot go into tomorrow with yesterdays ideas.
What are your thoughts?