Between 2000 and 2015, there was a notable increase in the number of landlords entering the buy-to-let market. Taking advantage of house prices and increasing demand for rental properties, the market ensured investors could benefit from the capital growth of the property and regular rental yields.
This so-called “buy-to-let boom”, however, came to an end in 2016 when the government started introducing new reforms and regulations affecting how landlords buy and manage their rental property. Why regulation is clearly warranted in any sector so as to protect the interests of all relevant parties, the ongoing reforms have been placing notable stress on landlords. The costs and time involved in being a landlord are rising, leading many investors to question whether buy-to-let really is a viable opportunity anymore.
Having worked closely with those involved in the property sector, FJP Investment wanted to uncover the current sentiment of landlords towards the buy-to-let market. At the beginning of the year, we commissioned a survey of UK-based landlords to see just what their experiences have been.
The results make for interesting reading.
Of all the findings from the survey, one statistic stood out from the rest. A significant majority of landlords, 68% to be precise, feel that buy-to-let investments have become a far less attractive prospect in the last five years. This is a concerning statistic that reflects the challenges landlords have been facing.
What’s more, when it comes to the policies that have been introduced since 2016, 71% of landlords and property investors said they have unfairly targeted by the Government through tax reforms and new regulations. Should new reforms and policies be introduced in the coming years, it is likely that dissatisfaction for buy-to-let property will increase. It might seem controversial, but there is a risk we could see existing landlords selling their rental properties and leaving the market entirely.
All that being said, FJP Investment’s research does not suggest investors are being put off property as an asset class. The fact that house prices rose by over 5% in 2020 demonstrates the underlying demand for real estate. On top of this, the 2021 Spring Budget delivered in early March made it clear that the property market will be vital in bringing about the post-pandemic recovery of the UK economy. This is reflected by the extension of the Stamp Duty Land Tax holiday until the end of June 2021.
Interestingly, 67% of landlords told FJP Investment reported that they would consider other forms of property investment that do not incur the same taxation and complexity as buy-to-let and second home purchases. Clearly, investors want to consider opportunities that can be effectively and easily managed without having to worry about complex rules and regulations.
The UK is fortunate in the sense that it offers a variety of different ways for investors to benefit from the advantages of property. Looking beyond the traditional, and direct, buy-to-let model, investors can also consider property investment funds, real estate investment trusts, commercial property funds and loan notes. Each of these vehicles offer different benefits depending on what an investor is looking for, be it short-term gains or long-term returns.
Overall, it is clear that landlords are starting to question the overall viability of remaining in the buy-to-let market. While there is still the opportunity to benefit from potential capital growth and regular rental yields, ongoing regulatory changes could actually make these traditional advantages less attractive. As a consequence, I believe we should see more investors looking to alternative avenues of property investment in the coming months, and indeed years.
