Mar

Slowing investment in buy-to-let is hitting tenants

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OBR Report:

With fewer new investors in buy-to-let properties around, tenants are beginning to struggle to find suitable accommodation at an affordable price in some locations.

New landlord taxes and more stringent letting regulations, as well as stricter mortgage lending criteria and the prospect of higher interest rates and slowing house price growth are combing to have a cooling effect on prospective property investors.

However, many small-scale landlords can still rely on property for retirement income, and as an asset class it still compares favourably with other alternatives, (building societies, banks and stocks and shares etc) when it comes to investment returns. With good tenant demand and rising rents, small-scale landlords with minimal borrowing are still achieving excellent yields.

Many larger portfolio landlords have been planning to or already do operate their businesses through a limited company. There are tax advantages in this mode of operation for some, but the costs involved in converting a privately held portfolio into an incorporated structure may be prohibitive for many; though it could be viable for new purchases. Anyone contemplating this should seek professional advice.

A recent Office for Budget Responsibility (OBR) report shows that the government’s policy of discouraging buy-to-let investment through the various measures listed above may not be working in the way it intended, i.e. encouraging more owner occupier investment, along with more corporate build-to-rent investment.

In its Economic and Fiscal Outlook the OBR has warned of warned of “subdued growth in residential investment.”

Commenting on the report Alan Ward, chair of the RLA, has said:

The “…assessment by the OBR demonstrates the folly of taxing the supply of new homes to rent.

“It is more important than ever that we recognise the dynamic role the rental market can play in swiftly responding to the country’s ever changing housing needs.

“The government should come forward with a package of pro-growth tax and planning policies to support private landlords who want to invest in the new housing the country needs if renters are to be able to find the accommodation they want.

“The build to rent sector is not delivering at the rate required and in the past private landlords have delivered three out of five of all new homes.”

The OBR Report (Economic and fiscal outlook, March 2018) says:

“Real residential investment rose by 7.8 per cent in 2017, up from 7.6 per cent in 2016. In line with our forecasts for house prices and property transactions, we expect relatively subdued growth in residential investment over the forecast period. Housebuilding is expected to slow in the near term, reflecting subdued turnover in the housing market and modestly higher interest rates.

“Housebuilding is then expected to rise as housing market turnover picks up. Housing improvements are also expected to slow in the near term thanks to recent weakness in real wages, before picking up as real earnings growth picks up. Over the medium term, residential investment is expected to grow broadly in line with real GDP.”

House Price Inflation Forecast

House Price Inflation