The UK buy-to-let sector offers a lot of potential for property investors. The combination of many factors – including strong demand for housing in the private rental market and consistent price increases in key towns, cities and regions – creates a positive picture for buyers looking for both short-term returns and long-term growth.
It is also a market that has experienced a number of significant changes and challenges in recent years, particularly with regards to taxation, legislation and regulatory oversight.
As 2018 approaches its conclusion, many investors will be reflecting on the most significant developments of the past year and looking ahead to what 2019 could bring.
A tumultuous year
The past few years have produced their fair share of headlines for the buy-to-let property market in the UK, with 2018 proving particularly eventful.
One of the most noteworthy recent trends has been the gradual reduction in levels of mortgage interest tax relief landlords are able to claim. In the 2018-19 financial year, the amount of relief landlords can claim dropped to 50 per cent, and in 2019-20 this will fall again to 25 per cent. The policy will be eliminated entirely from 2020 onwards.
Stamp Duty tax changes introduced in 2017, where buy-to-let properties and second homes are liable for an additional 3% levy, has seen the upfront cost of a property investment increase.
Buy-to-let property owners have also had to contend with changes including a broadening of the criteria for houses in multiple occupation (HMO), meaning more properties will need an HMO licence, and new licensing schemes from some local councils.
On a macroeconomic level, property investors have witnessed two increases in the Bank of England’s base rate of interest in the past year. The November 2017 hike was the first rise in the base rate since July 2007.
There have also been broader political and economic challenges facing the whole of the UK, most notably Brexit. As the government continues to negotiate a deal for Britain to withdraw from the European Union, there remains a lot of uncertainty for all kinds of businesses, workers and investors in various industries.
However, amid all the tumultuousness and unpredictability of recent years, investors have kept their faith in the UK property market. Recent figures have suggested that many continue to view property as one of the safest investments around, regardless of external trends and challenges.
In a Q3 2018 update, specialist mortgage lender Paragon noted that a decade on from the global financial crisis, the average market value of landlords’ investment property portfolios has reached a record high of £1.7 million.
The report acknowledged that the possibility of Brexit-related economic uncertainty is a concern for some, but buy-to-let property owners can also take encouragement from positive trends in tenant demand and void risk.
“Tenant demand remains robust, with well over 80 per cent of landlords reporting demand as stable, growing or booming,” said John Heron, managing director of mortgages at Paragon.
“Property voids are also low at 2.9 weeks on average. The UK’s private rented sector is home to one in five households today and RICS predict we will need another 1.8 million rental homes by 2025.”
What are the prospects for 2019?
There are many questions yet to be answered about Brexit and the impact it could have on the British economy in 2019, but buy-to-let property looks set to remain one of the most reliable, popular and profitable investment options over the coming year and beyond.
The head of a specialist mortgage broker recently stressed that the buy-to-let sector continues to offer strong prospects for investors, despite the recent regulatory changes and tax reforms.
Andrew Turner, chief executive of Commercial Trust, pointed out that adjusting to these challenges is likely to be most difficult for inexperienced investors, or those with relatively few properties in their portfolios.
“The simple fact is that buy-to-let remains a solid investment option, with strong potential for an attractive and profitable return on capital invested,” he added.
“Investors should not be deterred… Demand for rental housing is stronger than ever, the cost of debt remains relatively cheap and the housing shortage is likely to continue.”
Where key financial metrics such as rental yields and capital growth are concerned, the UK is home to many towns and cities offering the positive signs investors are looking for. This is particularly true outside London, with high housing costs in the capital reducing yield potential for buyers.
Shawbrook Bank has highlighted the north-west as an investment hotspot, owing to low house prices and high average yields. This region is home to some of the UK’s most popular university cities, such as Liverpool, where investors can benefit from strong demand for purpose-built student accommodation.
Emma Cox, sales director for commercial mortgages at Shawbrook, said: “Lower rental yields in London and affordability constraints for investors has driven interest north, where borrowers are chasing the yield and heading to locations with lower average house prices.”
Will UK buy-to-let stay profitable in 2019?
Investors will also be on the lookout for 2019 UK property hotspots. Cardiff is one of the cities that fits this description, according to Knight Frank, with high-quality universities, strong tenant demand and limited supply suggesting strong potential for rental growth in the Welsh capital.
The past few years have certainly been eventful for UK property investors, and there is a strong chance 2019 will deliver some noteworthy developments and challenges of its own.
However, if there is one undeniable quality Britain’s property market has demonstrated since the financial crisis, it is resilience. Investors who make the right decisions in key areas such as location and asset class can feel confident the sector will continue to withstand external pressures and deliver results in 2019 and beyond.
So, will buy-to-let property investments be worth it in 2019? We think, yes.
If you are a cash buyer looking for advice on how to invest in property, contact Experience Invest for more information about our latest properties for sale and how you can generate a passive income.