The end of buy-to-let as we know it?
Paul Howells, chief executive, Accumulate Capital
It’s hard to understate the impact of the stamp duty land tax (SDLT) holiday on the UK’s property market. The reform was announced at a time when the property market was reeling from the sudden drop in transactions as a result of the COVID-19 lockdown measures. Following the introduction of the tax break, buyers and sellers flocked to the market, leading to an 18-year-high in the rate of house price growth and a consequent surge in house prices.
Prospective buyers across England and Northern Ireland, keen to take advantage of the comparative discounts on offer, have returned to the market in droves. This policy’s success in incentivising property investment lies not only in the potential savings for homebuyers of up to £15,000, but also in the fact that all buyers can take advantage; be them established landlords or first-time-buyers.
However, for established landlords there are signs that buy-to-let (BTL) investments have begun to lose their lustre. As the drawbacks and difficulties associated with being a landlord have grown over the years, some have started to question whether the negatives now outweigh the potential benefits.
Accumulate Capital has long been aware of this trend, commissioning a survey back in February to measure landlord sentiment towards the BTL market. Among the 750 landlords we spoke to, almost two thirds (63%) felt actively dissuaded from considering new BTL investments due to the new regulation being implemented during the 2020/2021 financial year.
These changes, including amendments to Section 21 and reforms to mortgage interest rate relief, are part of the ongoing efforts by successive UK governments to reform the private rental sector. Multiple administrations have attempted to ease the burden on renters in the UK but, without a unified strategy, one cannot but help but feel that this has resulted in piecemeal regulation squarely targeting British landlords.
Obviously, responsible regulation is vitally important to protecting the interests of both buyers and sellers in any given market. Nonetheless, a lack of an overarching vision has resulted in undue pressure being placed onto landlords.
COVID-19 has made matters more complex. Given this, it is important to identify just how the coronavirus pandemic has affected the BLT market, and whether the sentiment uncovered at the beginning of the year by Accumulate Capital still remains amongst landlords.
BTL’s ‘New Normal’
The working-from-home revolution, a consequence of social distancing measures, has massively altered the BTL market’s trajectory. London, previously renowned worldwide as a respected BTL locale due to the high rental income and capital growth on offer, is now seeing an exodus of newly homebound professionals as they seek larger properties outside the city.
Recent Rightmove figures demonstrate this trend. What’s more, LonRes recently revealed that the overall number of new lets in London has been down 25% every month this since June when compared to 2019. In a bid to attract new tenants, London landlords have been forced to lower their rental prices by up to 20%. All this does not bode well for the UK’s BTL market at large. Despite government efforts to economically shield homeowners, the National Residential Landlords Association reports that 66% of British private landlords expect to be negatively affected by the pandemic.
These are confronting findings. They show the economic impact COVID-19 has had on landlords and could symbolise the beginning of a long-term trend if the UK remains in some of form of lockdown for the foreseeable future.
The questions beckon: is it still worth entering into the BTL market? Are the SDLT holiday deals on offer worth the hassle of second-homeownership, or are there other ways to invest in the UK’s residential real estate market?
A market in decline?
When weighing up COVID-19’s effect on rental demand, the regulatory measures governing the BTL sector and the SDLT holiday; I feel that the positives simply do not outweigh the negatives. Though the SDLT holiday lowers the cost of entry, there have been no signs of the UK government planning to introduce new policies to tackle the issues landlords now face in the short term.
With all this in mind, I consider it likely that those seeking to invest into property will be eager to consider other options. Afterall, while the BTL market might present significant challenges, I do not think it has tainted the attractiveness of real estate an asset class. After all, house prices are rising as a consequence of significant market demand and there is no sign of this demand easing anytime soon.
Even before the COVID-19 pandemic hit the UK, Accumulate Capital’s aforementioned survey revealed that 21% of British landlords were already considering alternative avenues of property investment, like property development finance. I anticipate that demand for these alternative investment vehicles will no doubt increase for those looking to invest capital into bricks and mortar.
The BTL market is by no means dead. However, COVID-19 has created new challenges that may be the final nail in the coffin for landlords already disgruntled by the waves of rules and regulations they have had to face. All in all, the property sector is in for a few eventful months.