[ad_1]
The mainstream media have been stirring the ‘Is buy-to-let investment worth it?’ pot in earnest over the past month or so.
Naturally, this has spooked a few existing and prospective landlords. And I understand that there’s been a lot of additional pressure put on investors recently.
However, I do not believe the outlook is so bleak that we’re about to see a mass exodus of investors and the death of buy-to-let.
The government should know it can’t afford to legislate landlords to oblivion
As I’m sure you’re more than aware, interest rates are rising fast. Although we saw this coming, the reality has finally hit the majority of landlords who are now scrambling to fix onto five-year terms.
Some are suggesting that, if rates go much higher, it’ll put landlords off.
Now, I don’t know how long you’ve been in this game but, as a broker with over 20 years under my belt, I still don’t consider today’s rates that high. I remember when we thought anything under 5% was a good deal! Landlords were willing to pay these rates at the time because they recognised that the yields still worked out.
Granted, average rates now (4.40% for a five-year fix) have exceeded those in June 2016 (3.93%). However, rent levels have increased significantly — 10.6% in the year to May 2022 — and will continue to do so due to unprecedented demand, so I don’t think these increases will decimate yields.
We can help put our clients in the best position to purchase by assisting them to raise capital now, so deposit funds are readily available
The biggest concern for most landlords, understandably, is legislation changes. The government has revealed a few more details (although, arguably, not enough) about the much-anticipated Renters Reform Bill, including abolishing Section 21 ‘no fault’ evictions.
Until we have more information on the parameters within which landlords can evict tenants, I understand the unease. However, I have faith that the government will include some safety nets for landlords, given how heavily it relies on them for affordable housing.
Landlord register
Similarly, concern around the rental property portal (essentially a landlord register) is justified, but the devil will be in the detail. There must be some protection to prevent vindictive tenants from getting landlords struck off unjustly.
I do not believe the outlook is so bleak that we’re about to see a mass exodus of investors
Ultimately, I believe this could help root out those who do give the sector a bad name. In the same way, I think expanding the Decent Homes Standard to the private rental sector needn’t concern those with good-quality and well-cared-for property, but should be a wake-up call to those who’ve got away with providing sub-standard housing for many years.
Like the above, changes to Minimum Energy Efficiency Standards are yet to be fully legislated, but are highly likely to happen. With the first proposed deadline fast approaching in 2025, we must ensure our clients are considering their options now, even if they don’t want to act just yet.
The biggest concern for most landlords, understandably, is legislation changes
This is especially pertinent given how many landlords are opting for five-year fixes to not get stung by rising interest rates. How will they fund increasing their energy performance certificate ratings to a C or above if they’re locked in to mortgages with expensive early repayment charges? If they don’t want to raise capital now, does their chosen lender offer further advances?
These are conversations we need to have with clients to help best prepare them for last-minute legislation.
Lack of properties
Finally, I know many of my clients are still actively looking to purchase. However, the lack of available property (and therefore high competition) is scuppering their plans.
According to data from Rightmove, demand for each available property was down 8% in May compared to April but still 6% higher than in the year before. If the market is naturally cooling, helped by people withdrawing from the buyers’ market due to the cost-of-living crisis, this will hopefully open up more opportunities.
Again, we can help put our clients in the best position to purchase by assisting them to raise capital now, so deposit funds are readily available when they find the property they want.
As a broker with over 20 years under my belt, I still don’t consider today’s rates that high
There is a good deal to keep a weather eye on but I think it’s too early to throw in the towel, based on the information we have thus far. Given continued pressure for affordable housing and the less-than-lukewarm reception for Boris Johnson’s plans to extend Right to Buy, the government should know it cannot afford to legislate landlords to oblivion.
We must reassure and help our clients to prepare as best we can, and outsmart anyone who suggests buy-to-let is dead.
Jeni Browne is sales director at Mortgages for Business
This article featured in the July edition of MS.
If you would like to subscribe to the monthly print or digital magazine, please click here.
[ad_2]