Is the UK Buy-to-let Market Beginning to Lose its Lustre?

Is the UK Buy-to-let Market Beginning to Lose its Lustre?

The UK property market is in the midst of an unexpected mini-boom. But with the ending of buyer incentives on the horizon, some attitudes appear to be changing. With this in mind, FJP Investments CEO Jamie Johnson investigates whether landlords and buy-to-let investors feel it is still a fair and level playing field.

When it comes to property investment, buy-to-let has traditionally been seen as a lucrative opportunity among investors. There are two reasons for this.

FJP Investments CEO Jamie Johnson
Jamie Johnson.

The first is the opportunity to earn regular income in the form of rental payments. Letting out a residential property can help pay off the initial debt acquired to purchase the rental property.

Once the debt is paid off, investors than have the opportunity to earn significant rental yields.

The second reason has to do with the value of the property itself. As a tangible asset, property is well-positioned to offer capital growth over the long-term.

One useful way of measuring capital growth is through house price fluctuations.

In 2020, for example, the Office for National Statistics recorded an 8.5% increase in average houses prices. This is an impressive rate of capital growth for any asset and reflects the underlying market demand for bricks and mortar.

While we can indeed appreciate the advantages of buy-to-let investments, the practicalities of buying and managing a rental property have become more complex. Rules and regulations are constantly changing, making it difficult for landlords to keep abreast of the latest policy reforms.

These concerns first surfaced in April 2016 following changes to stamp duty. Since then, both prospective and existing landlords looking to expand their rental property portfolios are subject to additional stamp duty levies when purchasing a buy-to-let property. This has been followed by a raft of new policies landlords increasingly feel are being unfairly weighted against them.

Buy-to-let returns have been diminishing over the years

Buy-to-let is falling out of favour with landlords
Delving into this issue, FJP Investment recently commissioned a survey of over 1,000 UK property owners. Of those, 344 owned two or more investment properties. In the survey, we asked the sample about their sentiments towards the buy-to-let market. As detailed below, the results suggest more people are being dissuaded from becoming a landlord.

When asked about their views on the buy-to-let market, 68% of multiple property owners said that buy-to-let investments have become far less attractive over the past five years.

This is a concerning statistic and suggests that the management of a rental property is becoming more complex and time-consuming.

Landlords are also not happy with the recent reforms that have been introduced. The overwhelming majority (71%) of landlords and property investors told FJP Investment they feel they have been unfairly targeted by the Government through tax reforms and new regulations since 2016. Of course, regulation is warranted to ensure the rights of tenants and landlords are protected.

However, it seems recent reforms might actually be having a negative impact on landlords. These include reducing the income tax relief that landlords can claim in their rental property and the ban on letting agent fees for tenants.

Taking all of this into account, two-thirds (67%) of landlords said that in the future, they would consider other forms of property investment that do not incur the same taxation and complexity as buy-to-let and second home purchases. This is an important point.

Existing landlords may be frustrated by the management of rental properties, yet this has not affected their views on property as an investment. They are clearly still interested in having property form part of their investment portfolio and are now willing to look beyond buy-to-let to consider new opportunities.

Property investors are now considering other avenues

Taking advantage of new property investment avenues
Due to the strength of the UK property market, there are plenty of options beyond buy-to-let for investors interested in real estate. If the complexity surrounding the management of a rental property increases, this could result in more landlords selling their buy-to-let investments and use the capital to engage in different real estate investments.

Here in the UK, investors benefit from a diverse range of property investment opportunities. This ranges from crowdfunding to loan notes and property development finance. Such financial products are slowly increasing in awareness as investors look to new ways of benefiting from the capital growth on offer from real estate.

The challenge, however, is ensuring investors understand how these alternative investment vehicles are typically structured.

More property transactions are expected in the next few months

For now, the property market has reached an interesting juncture. With the stamp duty holiday extended until the end of June and the UK inching towards an end to lockdown, the next few months are likely to be defined by increasing transactions and rising house prices.

Time will tell if there is indeed a mass exodus of investors from the buy-to-let sector, but FJP Investment’s research underlines the fact that there is now far less appetite to be a landlord.

About Jamie Johnson
Jamie is the CEO of FJP Investment, a company founded in 2013 which specialises in UK and overseas property-based investments. Its clients consist of HNWI, institutions and family offices. The business also partners with developers, providing them with a readily accessible funding source for development projects.

Read more articles on buy-to-let and the property market in general here.

Is the UK Buy-to-let Market Beginning to Lose its Lustre? 2


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