One of the reasons a buy-to-let portfolio has become a more predictable way of generating an income is because of rising rents in the UK.
Paul Shearman, proposition director, mortgages, protection and GI at Openwork, points out an ongoing failure for housebuilding supply to meet demand means there is little likelihood of supply outstripping demand any time soon.
“This will mean rising rents and limited void periods, reinforcing the attraction of buy-to-let,” he suggests.
“That said, with limited house price inflation expected over the next couple of years, combined with the impact of tax relied and other rising costs, the financial attraction of buy-to-let will be under some pressure in the coming years,” cautions Mr Shearman.
“This will inevitably curtail some landlords from entering the market or growing their portfolios, and will mean greater focus on regions and property types that generate higher yields.”
Matthew Bird, independent financial planner at Seer Green Financial Planning, observes property values in the UK are still underpinned by a “chronic shortage” of housing supply.
But he warns: “People should be wary however, that the demand side has been heavily stimulated by ultra low interest rates – and away from buy-to-let by government stimulus from Help to Buy.
“Any significant rise in rates or withdrawal of stimulus could pose a big shock to the market.”
The Bank of England governor Mark Carney has hinted at a rate rise sooner rather than later this year so buy-to-let landlords will want to keep a close eye on monetary policy committee meetings.
They may also have to come to terms with slightly lower returns from their buy-to-let properties from now on.
Tenants take the brunt
John Phillips, group operations director for Spicer Haart and Just Mortgages, reassures landlords and investors there is “still money to be made” as buy-to-let continues to yield reasonable returns. However, he believes it is tenants who will ultimately take the brunt of the taxation changes and renewed regulatory scrutiny.
He notes: “If landlords are paying more, be that in tax, or in extra charges to a letting agent, ultimately they will cover that by putting the rents up.
“This means all the new measures will end up hitting those who can least afford to pay – the tenants. Many of those people will still not be able to buy as they will be less able to save up for a deposit, or they may be self-employed and not have the required number of years’ accounts.”