Buy-to-let  

Not all gloom for rental market

Not all gloom for rental market

It has been widely reported in the media how Brexit uncertainty has slowed down both the buy-to-let and residential housing market.

However, closer examination suggests other factors may have as much or more influence on current market activity.

Undeniably there has been a slowdown in both residential and buy-to-let markets over the past 12 months.

UK Finance recently reported that while buy-to-let remortgage activity has soared, the total number of buy-to-let purchase completions in 2018 was 11.2 per cent less than in 2017.

Meanwhile, their figures for January 2019 showed a 1.5 per cent reduction in the volume of residential lending, compared to the start of 2018. Put simply, people were choosing to sit tight and rely on the private rental sector rather than buy their own homes.

Key Points

  • There has been a slowdown in the buy-to-let sector
  • There has been intervention by the government in the buy-to-let market
  • The number of buy-to-let products shows lenders are positive about the outlook

For many who are renting, the prospect of saving for a deposit remains an almighty challenge.

The Ministry of Housing, Communities and Local Government’s recently-released English Housing Survey for 2017-18, indicated that the private rental sector has remained unchanged for the past five years at 4.5m households, which equates to 19 per cent of the total.

The latest survey revealed that 58 per cent of renters expected to buy a property eventually, with 26 per cent anticipating this will happen within the next two years, while 41 per cent suggested it will take five years or more to accomplish this goal.

Those timescales suggest that Brexit is not a major consideration.

Meanwhile, landlords have been dealing with more immediate and tangible concerns.

The past three years have seen substantial government intervention in the buy-to-let market, with the introduction of stamp duty on additional properties and the reduction and gradual replacement of mortgage interest tax relief perhaps the biggest financial changes.

But factor in the new house in multiple occupation licensing laws and crackdowns on living standards, plus the imponderable consequences of the imminent tenant fees ban and it is easy to see why some landlords have decided to sell up or not invest.

In particular, it has been the smaller landlord, perhaps with less time to keep abreast of the changes or adapt their strategy, that has struggled with the changes.

Many landlords with larger portfolios may already operate with more organised strategies in place, particularly in light of the Prudential Regulation Authority changes that came into effect in October 2017.

These required a more rigorous approach to the underwriting of portfolio borrowing and resulted in such investors having to provide more detail at the application stage.

It is too simplistic to simply lay current property investment levels purely at the feet of Brexit. There are too many other elements at play.

Adopting a pragmatic approach to investment

There are still plenty of reasons why buy-to-let investments can offer opportunities to those looking for solid financial returns.

Firstly, depending largely on property location and type, many landlords continue to turn a profit, which currently outweighs those available from other types of investment.