Once, Britain’s landlords considered buy-to-let (BTL) an appealing investment option. But this was before crippling tax blows triggered a waning interest. However, with an increase in the residential stamp duty threshold to £500,000 (from £125,000) until March 31, 2021, buy-to-let can emerge again as a popular choice for property investors. When savings rates are low, unemployment is predicted to rise to four million by the year-end of the year, and the stock markets are risky for being volatile, those ready to make lumpsum invetsments don’t have many choices. For them, buy-to-let could become increasingly popular. Let’s delve deeper to know if it’s really a good investment choice.
For first-time landlords
Since March, the number of BTL fixed deals for two years targeting first-time landlords with a 75% LTV (loan-to-value) has dropped by 88. Deals at a 60% LTV have also fallen by 13 since March. Even 2-year and 5-year LTV fixed at 75% have decreased by 45 and 20 respectively, while 2-year LTV fixed at 60% has dropped by 14. The only number of deals that have increased year-on-year by 7 are 5-year deals fixed at 60% LTV.
The Nationwide House Price Index released in September showed a rise in average property prices by 2% month-on-month. However, experts predict a fall in property prices towards the year-end and into 2021. But when you consider a decrease in first-time landlord deals, rising mortgage rates, and escalating property prices, buy-to-let appears not to be a wise investment decision, especially in the existing scenario.
For landlords with multiple properties
Across the whole BTL market, the number of available deals has decreased since March. However, the stamp duty holiday and low interest rates could encourage landlords to snap up more properties as they expect house prices to drop amidst the ongoing pandemic. But there’s another end of the spectrum too.
Landlords in some areas (like London) have been forced to reduce rents as their renters are choosing to leave the city. There are some others who haven’t received their rents because their tenants have been either furloughed or laid off. As the BTL sector is facing these challenges, some landlords with a property portfolio are considering selling off a few of their properties to make up for their losses. However, experts predict good times ahead.
Over the forthcoming weeks and months, there’s likely to be a high demand from renters. And this would be triggered by multiple factors. To begin with, those who had to put their plans to move on hold due to the mandatory business closures and lockdown could now plan their move. This would cause a spike in the demand for rental properties, which would push the average rents up. Additionally, due to the prevalent economic insecurity as well as poor job prospects, those who earlier thought of buying homes would now prefer rental accommodations. And it would be a long time before they’ll regain the financial assurance to make major decisions like buying a home. Consequently, this would boost the demand for rental properties. Thus, if you have a strong property portfolio, you would do well not to sell off a few. Rather, you should add to your portfolio, if possible, and target locations where rents are rising. For instance, in the North West, rents escalated by an impressive 5.2% in June year-on-year. And there’s no slowing down since as many as 12 tenants are applying to visit for each rental property that’s available in the region.
The decision to invest in buy-to-let properties could vary based on who you are. However, if you’ve got the risk appetite and would like to jump in, make sure you do your research and talk to your financial advisor before making a move.