Are off plan developments the safest best in the current economic climate?
Prime minister Theresa May is set to trigger Article 50 on March 29th, undoubtedly bringing even greater uncertainty to the UK’s property market when she does so.
Since the UK voted to leave the EU, the property market has seen a significant amount of investor anxiety. Foreign buyers are particularly concerned, with a total lack of certainty about trade deals and freedom of movement.
It’s not just Brexit that is causing uncertainty in the market. There are incoming tax changes that are also threatening to put investors off.
April 2017 Tax Changes
Paul Smee, director general of the Council of Mortgage Lenders, has explained that buy-to-let property purchase activity continues to be weak. He added: “This will likely remain so going forward as lenders tighten affordability criteria ahead of the PRA [Prudential Regulation Authority] mandated stress tests, and the introduction of tax changes in April.”
From April 6th, relief of finance costs to a level equivalent to basic rate of income tax will be restricted. Landlords are currently able to offset all their finance interest against their rental income, before calculating their rent profits and the resulting tax bill. However, the government has stipulated that some landlords will have to pay tax on part of their costs.
This has led to some buy-to-let investors thinking twice about what they could be getting into.
However, the UK’s property market will remain a highly attractive prospect to a huge number of investors when compared to other asset classes.
With mortgages becoming more difficult to obtain, there are more opportunities for cash buyers and there are real discounts to be found in the off plan market. Since these properties are being sold before they are built, the developers will typically sell them to cash buyers at below market value.
Are off plan developments a safe bet?
Buy-to-let investors will get top rental yields by focusing on property investment hotspots with good transport links and amenities. These are often found in large cities, where tenants are often young professionals who need accommodation close to their workplaces.
Buying a in off plan developments, before it’s complete, offers a fantastic opportunity to seal a good deal when other prices in the area are rising. This presents huge opportunities for rental yields.
Knowing that your property is sold with a ten-year warranty is just another reason to consider buying off plan developments. The National House Building Council covers roughly 80 per cent of all new builds in the UK, so investors will likely be protected.
Off plan properties can present really attractive options to investors, with great deals to be found and potentially fantastic yields, so it makes sense to think about them as a safe harbour in the current climate.