Despite the headlines, the buy-to-let sector remains a solid investment option, according to a specialist broker in the industry.
While the buy-to-let sector has undergone radical change over the last couple of years – with several tax and regulatory changes affecting many landlords, prompting some investors to leave the market – the reality is that property remains a “solid investment”, insists Andrew Turner, the Chief Executive of Commercial Trust.
Turner believes that it was inevitable that the tax changes, which could potentially suppress profitability of landlords’ portfolios in the short-term, would impact the perceived desirability of buy-to-let investment, but firmly believes that there are still plenty of opportunities for investors in the sector, thanks to demand for rental housing rising.
He explains his opinion: “The expectation was that this would be most keenly felt by those with fewer properties, because adjusting to the changes would be a more painful process for new investors or those with less experience.
“However, the simple fact is that buy-to-let remains a solid investment option, with strong potential for an attractive and profitable return on capital invested.”
He argues: “Investors should not be deterred from buy-to-let. Demand for rental housing is stronger than ever, the cost of debt remains relatively cheap, and the housing shortage is likely to continue. Even so, any investment decision requires care and expertise.
“Many headlines have focused on one and two property investors, who have left the market because they have found it difficult to adjust. The real story has really not been about buy-to-let becoming unattractive as an investment option.”
Recent data from UK Finance also suggests an evolution in buy-to-let, rather than a mass exodus of investors.
The Director of Mortgages at the organisation, Jackie Bennett, revealed this month that forecasts for 2018 buy-to-let purchase activity were likely to fall around £3 billion short of expectations.
She says: “This is undoubtedly the impact of various tax, regulatory and legislative changes that have happened to landlords in the buy-to-let sector.”
However, Bennett went on to add that buy-to-let remortgaging exceeded predictions for 2018, with lending likely to hit £27 billion, representing a £3 billion surplus on what was expected.
Turner comments on the UK Finance statement: “The market continues to grow and, in Q2 [the second quarter of] 2018, increased by 6% over 2017 levels. UK Finance statistics revealed that much of this growth was in remortgages, which grew by 15%, while purchases dipped by about 12%.
“In early August 2018, the Bank of England decided to increase rates by 0.25%. Although there has been limited market reaction so far, I expect to see market rates increase, because margins are wafer thin.”
He continues: “The Bank of England has said as much itself, with repeated messages that rates are anticipated to rise gradually over the long-term.
“Landlords have responded to this and there has been significant interest in fixed rates, useful to guard against rate rises. Investors are likely to continue to do this as their renewal dates come up and, therefore, I’m sure the remortgage market for buy-to-let will remain buoyant over the coming months.”
Nevertheless, UK Finance’s latest Mortgage Trends Update, covering the year to September, shows that buy-to-let lending has plummeted by over 18%.