Whilst investment in buy-to-let properties has dropped by 80% in the past two years, experts are actually advising that now is a good time to put money into rental homes. The Intermediary Mortgage Lenders Association figures show buy-to-let investment has fallen from £25 billion in 2015 to £5 billion last year. This has been put down to a number of factors, including the adverse tax changes and harsher lending standards. The figures mean that many landlords have been selling properties and not buying alternative ones of the same value or have not been expanding their portfolios. Another reason is simply that they have been paying off their mortgages.
IMLA executive director, Kate Davies, said the tax changes and regulations affecting the buy-to-let sector have far-reaching effects which have not yet been fully realised. The government has brought in these harsh tax changes to make buy-to-let investment seem less attractive and to encourage first-time buyers. Certainly, one half of this has been achieved. However, with property prices increasing much faster than wages, many people simply cannot afford to get on to the property ladder. Others prefer the flexibility of renting or do not want to be tied to a long-term mortgage. With one in five UK households living in private rented accommodation, the government should start appreciating how much the nation relies on private rental properties.
The IMLA report estimates that buy-to-let landlords invested £289 billion between 2000 and 2017. However, some investors are being put off from expanding their portfolio, while others are selling up, because of the new tax measures and regulations introduced in the past two years. If investment is not forthcoming, then rent prices are expected to rise because of increased demand. About 4.5 million people in the UK live in private rental properties and this figure is set to rise. Supporting the buy-to-let sector is, therefore, vital if tenants are to find affordable, quality accommodation.
Whilst landlords are rightly reluctant to expand their rental portfolios, experts are suggesting that buy-to-let remains a healthy investment, The ONS House Price Index figures show the annual growth rate for house prices in the UK as a whole was 5.2% in December, with an average price of £226,756. Sequre Property Investment managing director, Graham Davidson, said this increase is one solid reason why people should be investing in buy-to-lets in 2018. He said that the sector is still providing a good income, despite tax cuts. He also suggested that the volatile stock market would mean more people look to investing in property.
All UK regions enjoyed positive annual growth last year with the South West enjoying the biggest gains with an annual growth of 7.5%. Investors need to research locations carefully if they want to maximise profit. Yields can be higher in the north of England or Scotland, where property prices also remain attractive when compared to the South-East commuter belt and London. Investors could also look at expected trends, such as the multi-billion-pound regeneration of parts of London, Amazon creating 400 jobs at a new fulfilment centre in Rugby or the waterfront development at Barrow-in-Furness.
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