Buy-to-Let Watch: Not Dead Yet…

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The mainstream media has agitated the question “Is buy-to-let investment worth it?” pot seriously over the past month or so.

Naturally, this scared off a few existing and potential owners. And I understand there’s been a lot of added pressure on investors recently.

However, I don’t believe the outlook is so bleak that we are about to see a massive exodus of investors and the death of the buy-to-let.

The government should know that it can’t afford to force landlords into oblivion

As I’m sure you are more than aware, interest rates are rising rapidly. Although we saw it coming, reality finally hit the majority of owners who are now scrambling to set five-year terms.

Some suggest that if rates go up a lot, it will discourage homeowners.

Now, I don’t know how long you’ve been in this game but, as a broker with over 20 years under my belt, I still don’t consider today’s rates that high. I remember when we thought less than 5% was a good deal! Owners were willing to pay those rates at the time because they recognized that yields still worked.

Admittedly, the current average rates (4.40% for a fixed five-year term) have exceeded those of June 2016 (3.93%). However, rent levels have increased significantly – 10.6% on the year to May 2022 – and will continue to do so due to unprecedented demand, so I don’t think these increases will decimate yields.

We can help put our clients in the best position to buy by helping them raise capital now, so deposit funds are readily available.

The biggest concern for most homeowners, of course, is changing legislation. The government has revealed a few more details (although, arguably, not enough) about the much-awaited tenant reform bill, including the abolition of “no-fault” Section 21 evictions.

Until we have more information on the parameters under which landlords can evict tenants, I understand the unease. However, I am confident that the government will include safety nets for homeowners, given how much it relies on them for affordable housing.

Register of owners

Equally, the concern around the rental property portal (essentially a landlord registry) is warranted, but the devil will be in the detail. There needs to be some protection to prevent vindictive tenants from unfairly striking off landlords.

I don’t believe the outlook is so bleak that we are about to see a massive exodus of investors

Ultimately, I think it might help weed out those who give the industry a bad name. Similarly, I believe that the extension of the Decent Homes standard to the private rental sector need not concern those with a good quality and well-maintained property, but should be a wake-up call for those who got away with providing substandard housing for many years.

As above, changes to minimum energy efficiency standards have not yet been fully legislated, but are very likely to occur. With the first proposed deadline fast approaching in 2025, we need to make sure our customers are considering their options now, even if they don’t want to act right away.

The biggest concern for most homeowners, of course, is changing the law

This is especially relevant given the number of homeowners opting for five-year solutions to avoid getting stung by rising interest rates. How will they finance raising their energy performance certificate ratings to a C or better if they are locked into mortgages with costly prepayment charges? If they don’t want to raise capital now, does their chosen lender offer other advances?

These are conversations we need to have with our clients to better prepare them for last-minute legislation.

Lack of properties

Finally, I know that many of my customers are still actively looking to buy. However, the lack of available goods (and therefore the strong competition) derails their plans.

According to data from Rightmove, demand for each available property was down 8% in May compared to April, but still 6% higher than a year earlier. If the market naturally cools, helped by people pulling out of the buyer’s market due to the cost of living crisis, this will hopefully open up more opportunities.

Again, we can help put our clients in the best position to buy by helping them raise capital now, so deposit funds are readily available when they find the property they want.

As a broker with over 20 years under my belt, I still don’t consider today’s rates that high.

There’s a lot to watch out for, but I think it’s too early to throw in the towel, based on the information we have so far. Given the continued push for affordable housing and the less than lukewarm reception of Boris Johnson’s plans to extend the right to buy, the government should know it cannot afford to legislate homeowners until to oblivion.

We need to reassure and help our customers to prepare as well as possible and to thwart those who suggest that rent-to-own is dead.

Jeni Browne is Director of Sales at Mortgages for Business


This article originally appeared in the July issue of MS.

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