Mortgage Introducer April 2021

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REVIEW

HIGH NET WORTH

The state of BTL property in 2021 Peter Izard business development manager, Investec Private Bank

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ver the past five years, the buy-to-let (BTL) market has been subject to harsher taxation and significant regulatory changes, which have eaten into the profitability of landlords’ investments across the country. Most significantly, a 3% stamp duty surcharge introduced on second home purchases in 2016 saw the growth of the private rented sector (PRS) slow against a backdrop of weaker house price inflation. Over the past year at Investec, however, we’ve seen sentiment in the buy-to-let landscape take a positive turn as investor confidence returns to the market. To understand why this is the case, I have been examining some of the trends and considerations in the buy-to-let market that buyers should be aware of. STAMP DUTY DRIVING DEMAND

The stamp duty holiday introduced in July 2020 has helped to incentivise investor interest in the buy-to-let market, in spite of the pandemic. For those who may have been waiting to buy a property, the prospect of saving an extra £15,000 has made many bring forward their decision, offering a significant saving in terms of the yield for their investment. According to Hamptons’ recent buy-to-let research, the final months of 2020 saw around 15% of homes bought by an investor seeking to complete before the original stamp duty holiday deadline at the end of March. From speaking with my colleagues on the private banking team, poor interest rates on cash sitting in savings www.mortgageintroducer.com

accounts and volatile stock markets are also highlighting the attractiveness of buy-to-let properties as an investment. Most significantly, they emphasise its attractiveness in terms of store of value, return and the fact that bricks and mortar is a tangible asset that investors can feel and touch.

For those investors seeking to achieve favourable yield on their buy-to-let investments, however, it may be time to consider looking beyond the capital. Hamptons’ research in particular highlights the performance of buyto-let properties in the North East of England. In this region, nine in 10 landlords achieve yields of 5%, compared with half of landlords in the South East and a third in London. For investors seeking to supplement their salary with rental income, or build their investment portfolio, the low entry costs and high yields in this region could be attractive.

LIFTING RESTRICTIONS

With the government having now laid out its roadmap for the lifting of coronavirus restrictions, experts suggest we could see a resurgence of rental interest in the capital. As lockdown restrictions were implemented, the opportunity to work more flexibly saw many inner-London renters move out of cities to either save money, or live somewhere with more outdoor space. Hamptons notes that this saw rents outside the capital soar, while London had a ‘double-dip’ in rent prices in February, with the average in innerLondon falling 17.7% year-on-year. With Hamptons also reprting a doubling of rental homes being marketed in parts of London, and cheaper rents across the capital, this could see many renters return to the capital once restrictions are lifted. OPPORTUNITIES FOR INVESTORS

The investment opportunities for BTL investors are varied, and highly dependent on what one hopes to achieve, particularly considering varied performance across regions. For example, given the significant rise of London house prices over the last 10 years, much of the return on investment here is coming from capital appreciation, rather than rental yields. Many of Investec’s clients are seeing this as an opportunity to invest in property as long-term planning – achieving capital growth and some yield, before having the property for their kids to move into in future.

CHANGING PRIORITIES

When investing in buy-to-let property in the coming months, it will be important for investors to consider their target tenant, and how their needs may have changed. Many investors make the mistake of not thinking about who they are planning to let a property to. For example, if buying in Central London, the shift to home working may mean that buyers prioritise flats with a balcony or outdoor space. If buying with a view for shared property, however, bedroom space and communal areas will be important. But perhaps the most important considerations for investors will lie in how they decide to make their buy-tolet purchases. Experts have pointed to a shift from people owning buy-to-lets as an individual to owning them under a limited company. There are a number of significant tax-related benefits associated with this – such as being offset all of your costs before being taxed – and landlords should certainly be considering this if seeking an investment soon. Most importantly, it’s crucial that investors seek a reliable financial partner when making these significant investment decisions. Having someone that fully understands your financial situation and your specific needs – and who can act on your behalf – can be a significant game changer when seeking a worthwhile property investment. M I APRIL 2021   MORTGAGE INTRODUCER

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