How to Construct a 10 Year Buy-To-Let Plan?
The rental property market has encountered multiple recent problems besides COVID-19, so is it still viable to make a sufficient income from buy-to-let in 2022? This article is an overview of recent market changes, the main challenges/risks and the biggest domains of opportunity and development.
As buy-to-let landlords deal with increasing difficulties, a significant regulatory load, and more recently a temporary lockdown on the entire property market, many are postponing or even downsizing their development plans and portfolios. However, research highlights some interesting facts that the next decade will be rich with prospects for experienced and new landlords – only if they are willing to be adaptable and creative.
Why is it Becoming Increasingly Difficult to be a Landlord?
Landlords often have a difficult time gaining sympathy – the general public perceives them as ruthless property tycoons rolling in gold, and the majority of landlords have ‘bad landlord’ stories from their renting days. But the most current Private Landlords Survey conducted by the government reveals that 94% of landlords are private people earning an average of £15,000 a year from their homes, with just 4% using buy-to-let as their primary source of income. Moreover, over 60% are aged 55 or older, and 30% are retired. Many landlords just rent out their houses to supplement their retirement income, rather than pursuing profits. Additional layers of regulations can reduce profit margins even further.
Despite the fact that 80% of landlords didn’t intend to purchase more properties in the last 2 years, there are chances for those who are ready to adopt a long-term perspective and plan for the next decade.
Buy-to-let property is no different from other types of long-term investments in real estate. Difficult years and short-term declines might cause one to lose sight of the wider picture, such as the long-term trend of growing property prices and the massive shift toward leased housing. In the decade leading up to 2017, the renter population surged by a startling 63 percent. Therefore, anyone considering entering the buy-to-let market currently should consider the following three factors:
- Where is the greatest tenant demand currently?
- Where may real estate prices increase the highest in the future years?
- What buy-to-let risks to look out for?
Where Could Real Estate Prices Rise
Rental income is merely one form of buy-to-let revenue. The other, longer-term income comes from any appreciation in the property’s resale value. Another research, conducted
by Post Office Money and the Office of National Statistics (ONS), reveals the locations of the United Kingdom where property price increase is anticipated to be the highest over the next several years.
In 2019, house price growth virtually stalled at a national level, increasing by only 0.9%. However, this average number conceals the continuing rising tendencies in particular regions of the country. Particularly, the Midlands, Wales, and the Northern areas continue to enjoy home price increase, with Cardiff (9%), Sheffield (7%), Nottingham (7%), and Birmingham (7%). Nottingham, which also appears in Howsy’s top three cities for rental demand, stands out in particular. Cardiff’s top position is also a strong recommendation for adjacent Newport, which is ranked first by Howsy.
In addition to Nuneaton, Bedworth, Stockport, and Leicester, other cities and towns with high signs of future home price increase include Nuneaton, Bedworth, and Leicester.
Chrysanthy Pispinis, the director of Post Office Money, stated, “Many areas continue to experience tremendous increases in housing prices. These homes have the potential to be excellent mid-term investments, especially because they are located in areas that are still affordable for first-time buyers, which can be an excellent indicator of future growth hotspots.”
In recent years, the elimination of buy-to-let tax relief on mortgage interest has been one of the most significant blows to higher-earning landlords. If you’re a basic rate taxpayer, you will be unaffected. Other pressures that have recently emerged include:
The abolition of Section 21 “no-fault” evictions
Section 21 of the Housing Act permitted landlords to terminate a ‘rolling’ tenancy with two months’ notice without providing a cause. The government currently plans to eliminate this, so landlords will have to show a cause and persuade a judge that it is legitimate. Although tenants will likely applaud this development, it threatens to make landlords’ lives extremely difficult if they are dealing with problematic tenants.
Keeping this in mind, any landlord entering into contracts with tenants should thoroughly screen them to minimize problematic occurrences. Luckily for landlords, the proposed changes would not be reversible, so they could still terminate an Assured Shorthold Tenancy (AST) under Section 21 if it existed before the legislative change.
Private residence relief is withdrawn
If a rental property was formerly your primary residence, you could claim up to £40,000 in capital gains tax (CGT) relief on any rise in its value before April 2020. However, this will no longer be the case from April 2020 unless you are residing in the property (as your primary residence) at the time of the sale.