A buy-to-let (BTL) investment was once considered an attractive option for those seeking to benefit from regular rental payments and long-term capital growth. Over the last five years, however, there has been a notable shift in sentiment concerning the BTL market – in short, this once popular venture is no longer attracting the same amount of interest it once enjoyed.
The reason for this is simple – landlords have been subject to increasing regulatory measures which has made the process of managing a rental property more time consuming and potentially, much more expensive.Although the motivations for these new measures are respectable, such reforms seem to be disproportionately targeting landlords; from changes to stamp duty and mortgage interest rate relief, through to amendments of Section 21, landlords now face more hurdles than they have done in the past. For many, this has made the process of owning and renting a home an unappealing prospect.
There is no doubt that we must be doing more to re-balance supply and demand.However, targeting landlords is simply not the answer. Indeed, there are fears the UK could be facing a mass landlord exodus if no improvements are made. What’s more, if looks as though landlords are increasingly looking to other avenues,such as property development finance,to access new real estate investments.
Landlords are facing tough regulations
From first-time buyers trying to get on the property ladder, to tenants and investors, we cannot deny the need for regulation to protect the rights of all those involved in the property market. However, it is also important to properly understand how regulation affects the interests of those with a stake in the market. That’s why Accumulate Capital recently commissioned an independent survey of 750 landlords based in the UK to unveil how the government’s recent rules and taxes have impacted them.
Of those we surveyed, over a third (37%) of landlords said that they now had plans to sell their property in 2020. Given that property has historically been considered a highly appealing asset thanks to the healthy returns and long-term capital growth on offer, this figure is higher than expected. However, the blame doesn’t necessarily lie with dampened market conditions as one might assume – instead, 61% said that their plan to sell was in response to the increasing regulations and taxes they face as landlords.
At 69%, the majority of those surveyed also suggested that the costs of managing their property had grown “considerably” due to these changes. What this suggests is that the government has succeeded in disincentivising the buy-to-let. Indeed, almost three in four (72%) property investors surveyed believe current tax regulation measures make life unduly difficult for landlords.
Meanwhile, 63% of landlords said they were deterred from considering new buy-to-let options due to the new regulations that are coming in as part of the 2020/21 financial year, commencing on the 6th of April. Mortgage interest tax reform and changes to private residence relief are just two changes that currently lie on the horizon.
Exploring the alternatives to the buy-to-let market
While the traditional route to property investment has been the BTL market, there are boundless alternative avenues that are growing in popularity. Property development finance and debt investment are but two examples, with the former having witnessed a significant surge in interest over recent years.
For those who are unfamiliar with the concept, property development finance simply refers to the part of the alternative finance industry that funds property projects.Investors lend their capital to a development finance firm, who then arrange for this capital to be issued to developers and construction firms undertaking new-build projects. Investors benefit from the potential to earn significant returns, while developers are able to quickly access the finance needed to fund their construction efforts.
On a wider scale, property development finance is a powerful tool that should be leveraged to support the government’s goal of ramping up house-building and ultimately tackling the housing crisis. It also offers promising opportunities for investors keen to benefit from real estate investment; according to the aforementioned Accumulate Capital research, many UK landlords are considering alternative avenues of property investment like this, with over a fifth (21%) saying they will be looking to these alternative avenues over the coming years.
We must support property investment in the UK
The upcoming 2020 Spring Budget – which is set to go ahead as planned on 11th March – will be eagerly awaited by everyone with a stake in real estate. Based on recent speculations, it appears that the market is due for some significant reforms. However, to fully address housing affordability and availability, the government should focus on ramping up national house-building efforts rather than aiming their reforms at landlords. Indeed, the general sentiment from the Accumulate Capital research signals that landlords feel as though current regulations unfairly target them.
Beyond this, I am keen to see the government realise creative ways to support all players in the property market through instruments like property development finance; a solution that can not only be leveraged to increase housing output, but which can also benefits developers and investors.
By Paul Howells, CEO of Accumulate Capital