GOVERNMENT ASSAULT ON BUY-TO-LET HAS FAILED TO DENT ITS APPEAL

Published 12 February 2018

House for rentThe last three years may have seemed like one relentless assault on buy-to-let landlords, and yet as 2018 gets into its stride, residential lettings still offer a pretty good return for investors – and it’s all down to supply and demand.

It seems like the Government has regarded buy-to-let investors as easy pickings, returning again and again to raid their income: first by reducing the amount of mortgage interest landlords can set against tax (even though this is a perfectly legitimate business expense); then imposing an arbitrary three per cent supplement on the stamp duty investors pay when they purchase a property; and then increasing the rate of capital gains tax paid on the sale of residential property.

Unsurprisingly, the immediate aftermath of all this was that some investors left the market, and certainly potential investors decided to put their money elsewhere. 

But with interest rates remaining at a historically very low level – even with the recent rise – inevitably confidence in buy-to-let has started to return.  And with the potential yields, both revenue and capital, to be made, why not?

In the end it’s all about supply and demand.  Given an overall housing shortage, and with great swathes of the population unable to afford to buy their own home, that there is strong demand for rented property.  We get an average of at least three applicants for each property we market – and that mismatch of supply and demand is only driving yields one way.

The fact is that revenue yields on residential lettings, even with the increased costs imposed by Government, remain between four and five per cent.  Couple that with capital growth of around three per cent and you have an income which is pretty much impossible to find elsewhere without taking huge investment risks.

Yes, new investors have to take the stamp duty hit (in effect, the first year’s capital growth); and yes, investors now need a bigger deposit to secure mortgage funding for buy-to-let; but the buoyant demand from tenants means that the sector still offers great opportunities to those prepared to look beyond the doom-mongering headlines and examine the facts.

With rents predicted to continue to rise in 2018, that sustained demand for rented properties – and the limited supply that those Government measures are partly responsible for – means that the buy-to-let market is very much an attractive prospect.  As ever, of course, choosing the right property in the right location is crucial, but get it right and there are good yields to be made.

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