Getting into the buy-to-let side of the residential property market has been an increasing trend since the end of the last century as people began to realise that residential property can be there for investment-returns longer-term, not just for living in.
With the rising property market, people started to build up portfolios of properties let out to tenants, whether basic flats or larger and more complex houses.
However, things seems to have got more difficult over the last few years. There’s increasing bad press and hurdles to get through in order to get these stacking up, with reported trends of fewer private investors in this market, and more corporate-style off-shoots developing like the build-to-rent model with large blocks of flats being individually let out and not sold.
Therefore, things can get confusing and complicated. Any glimmer of hope seems to be dashed with costs and red-tape.
Which is why these seven core trends below are important to realise. As you sift through the various issues and how they relate to your own circumstances, these can begin to help you see light at the end of the tunnel.
These are looking at all the various property and economic issues surrounding the market, not just the core property management ones - which you need in order to then make informed decisions and get stuck into the actual property-management issues themselves.
So here goes, the seven core trends in the residential buy-to-let market to be aware of:
1. Finding the Funding
Having the funds and mortgages for a property to then rent out is key - although there can be many forms of ownership and funding with the wider Private Rented Sector, the buy-to-let area in particular is heavily dependent upon getting this right.
After all, the initial deposits are more than for owner-occupation, with specific funding products being required. And with occupiers needing to have substantial deposits themselves for direct purchase, this has caused a greater demand for simply renting properties anyway.
Also, there have been underwriting changes for lenders, for example through the Bank of England’s Prudential Regulation Authority.
In short, the good news is that there is an increasing demand for rented properties with people not able to save deposits and arrange mortgages on higher-valued properties like they used to.
But the bad news is that budding landlords still need to fork out deposits themselves and arrange funding for buy-to-let properties at the best price and rental levels.
2. Tracking Down Tenants
In general, there is an increasing demand for rented properties. As above, at lot of this is from reduced financial affordability for people to purchase their own homes, plus wider demographic changes such as more households and singles, and increased immigration.
But on the other side, there is arguably greater expectation and protection for tenants nowadays.
For popular areas both the property and landlord-service needs to be good, with clued-up tenants knowing their rights when it comes to landlords then dealing with arrears and lease renewals.
3. The Landlord Landscape
The types of landlords and properties is also getting more varied, not just the bog-standard flats or terraced houses being let out.
A whole range of properties can now work, right from large country mansions to even smaller outbuildings in a form of Airbnb type scenario.
You can also branch out into different types of occupiers, such as student digs, and even the retirement-age market.
Plus, watch out for the different sized ones, and ways in which landlords will try and squeeze more space for their money with say HMOs and multiple-households within one property.
4. The Emerging Economy
The wider economy of course has a say on things, which is linked with the above funding side of things.
Macro-issues such as Brexit and political power will effect the general vibe and affordability at all kinds of levels, with knock-on effects with say migration.
With buy-to-let investors of course in the game for financial rewards longer term, then economic performance of other property and non-property forms of investment will influence things widely.
5. Toting-up Taxes
It seems that the government has had buy-to-let owners in the firing-line when it comes to taxation in order to try and deter this and encourage more home ownership.
Stamp duty for a second home has now been introduced, plus mortgage interest tax relief from 2017 over a four year period, and tax relief for finance costs restricted to a basic rate tax credit.
In addition, there is a minimal wear and tear allowance, and from 2016 only the cost of replacing furnishings in the tax year in question will be an allowable deduction.
This has caused owners to look at how they own a property in order to benefit from the tax system, for example through a company rather than in an individuals or spouses name, however, the cost and hassle of first forming these and transferring property interests can soon outweigh the benefits.
6. Lots of Land
Provision of land and properties is having a huge effect on the residential market anyway, with lack of this to meet the increasing demand causing a rise in values and rents.
Planning restrictions and land available hamper this, plus even the housebuilders inability to construct properties quick and affordable enough.
Whilst there is also a focus on using old buildings such as office blocks for residential use through automatic planning permissions, margins can still be tight with the need to consider all other kinds of uses as well.
7. Management Mayhem
And finally, something a little bit closer to home, how you practically manage buy-to-let properties has certainly become more involved.
Increased compliance for landlords now includes smoke and carbon monoxide detectors, annual gas certification, and talk of specific electrical checks also on the way soon.
Plus, recent banning of tenant application fees has placed the cost and burden more on managing agents and landlords.
Mastering the Buy-to-let Market
As you look into the various issues around the residential buy-to-let market, there’s going to all kinds of factors to consider. Whether you’re a landlord investor wanting to get into, advisor trying to make sense of, or even a tenant at the receiving end - they all need to first get the facts correct.
These seven core trends will help begin to place this in context, and enable you to go deeper through specific investment, mortgage, and property advice.
Each individual property, location, and deal will be different - the trick is to know how it all stacks up for you personally.
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