A combination of the 2016 introduction of a 3% stamp duty surcharge on second or investment properties, the discontinuation of tax efficiencies for landlords, the most significant of which was being able to offset mortgage interest payments against rental income and Brexit uncertainty has seen what is reported as a significant contraction in the buy-to-let sector over the last year or two.
Exact statistics are hard to come by and the evidence pointed to for the market’s decline tends to be a combination of empirical or anecdotal evidence from individual property agents and buy-to-let mortgage application figures. But there has been a general consensus in the industry that there has been a significant net outflow of buy-to-let landlords from the market.
However, real estate agents are now starting to say there may be signs of a reversal of that trend with landlords again starting to snap up new investment properties. Depressed or slowing prices and historically record-beating terms being offered on buy-to-let mortgages have been credited by Hamptons International as tempting investors back into the market.
Aneisha Beveridge, the company’s head of research is quoted in The Times as commenting:
“Slowing house-price growth and falling prices in some areas are helping to boost landlord yields. This makes the sector a little more appealing, despite the policy hurdles.
“Landlord purchases have often led a property market recovery. After the last financial crisis it was landlords who stepped into the market first and started buying homes at discount prices. So we could be seeing a degree of this now.”
It might be pushing it to compare the current situation with the devastation the financial crisis a little over 10 years ago now wreaked on property prices across the board. Over the past 2-3 years it has been more of a case of growth slowing or stagnating in some regions while it has continued in others. Premium property in London and the South East is really the only part of the market to have seen a significant drop in selling prices, even if transaction activity has dropped more widely. However, signs of a market having adjusted to policy changes and perhaps starting to ease back to life could still be good news.
The proportion of UK property sales accounted for by buy-to-let landlords acquiring investment properties increased to 12% over the first five months of 2019 compared to 11% over the last five of 2018. The same trend was visible in the London market in isolation with investors buying 14% of properties, up from 13% over the previous five months.
The market for middle-priced multi-tenanted shared student homes is said to be particularly strong at the moment despite new regulation demanding landlords offer higher quality. Rental accommodation targeting young professionals is also doing well with yields in cities such as Manchester, Bristol and Birmingham all rising. Again, landlords in this segment, whether smaller individuals or companies, are finding that investing in quality now provides a real competitive advantage. Just sprucing up a property nicely with a mind to millennial priorities without putting particularly large budgets into it can lead to rental income of 10% more than commanded by equivalent properties in the same area.
Glasgow has recently come out on top of a list put together by property agents Benham and Reeves showing how long it takes landlords on average to recoup their initial investment in a buy-to-let property on rental returns alone. Capital appreciation is not taken into consideration.
Glasgow — 13.3 years
Belfast — 15.8 years
Aberdeen — 17.8 years
Nottingham — 18.4 years
Newcastle — 18.5 years
Manchester — 18.7 years
Derry City — 19.7 years
Leeds — 20.9 years
Edinburgh — 21.6 years
Lisburn and Castlereagh — 21.8 years