With the announcement from the chancellor that from April 2017 the government are cutting tax relief for property investors from 40-45% to just 20% as well as eliminating the right of landlords to claim 10% of their rent against wear and tear Britain’s landlords were left questioning whether Buy-To-Let investments in the UK will still produce a healthy return.
This drastic move by the government to remove this tax relief is designed to bring in much needed revenue to the treasury and also close the widening gap between investors and first time buyers competing with each other for properties.
It has left many existing landlords and those who were considering entering the property investment world doubting their future in the industry.
However, the move does offer some opportunities. Estate agents are predicting that this change may lead may force some landlords to exit the industry if they find that their properties are not producing the same return and they are unable to sustain them. If this happens could cause an influx of properties to enter the sale market. With landlords competing with each other to sell off their investments quickly this could force them to lower their asking prices to secure a sale. The benefit to other investors is this could potentially provide to pick up a bargain or a tenanted property that offers a ready-made investment opportunity.
For those landlords that decide to ride things out, letting agencies are predicting that the changes the government will be introducing is likely to result in a nationwide increase in rents to compensate. This means that there will still be opportunities to produce a healthy return on buy-to-let properties depending on the areas the properties are located in.
In order for Landlords to maximise their chances of achieving a good return it is vital that they factor in all their costs and adjust their buy-to-let strategy accordingly. This may mean taking the decision to sell properties in areas that do not offer as healthy a return, changing to agents with lower management fees or looking to see if they can make savings in other areas such as shopping around more for quotes for repairs.
If there are fewer investors entering the buy-to-let market mortgage lenders may find that the uptake of buy-to-let mortgages falls as a result. In order to combat this we may see lenders launching new deals in an attempt to attract investors. This could also provide a good opportunity for new or existing investors to take advantage of a better mortgage deal which will further help to re-balance their rental returns.
For those considering entering into the world of buy-to-let for the first time they have an advantage over their peers. They will be able to calculate the return a property offers based on these new rules and identify areas and properties that will still produce a good return based on the rental yield. Finding motivated sellers looking for a fast house sale is also a lot easier in the current market conditions. Estate agents will be able to comment on the predicted rental return a property will offer so you can judge whether it would offer a good return or not. Being more selective with properties and areas should help to make sure that you are sourcing properties for your portfolio that will remain sustainable for the long term.
It would appear that for some existing landlords, the next few years will be mean making some difficult decisions about their future in property investment. However the good news is that for others, there should still be opportunities to make a healthy return as long as they are aware that they should factor in the upcoming changes into their strategies and are prepared to shop around a bit more for the properties that offer the best returns.