Buy-to-let market update: doom and gloom or signs of recovery?

CONTACT STEVE

There’s been plenty of doom and gloom about the buy-to-let (BTL) market, which is understandable in light of the raft of tax changes and general market concerns faced by UK investors. Landlords with mortgages will have felt the squeeze again last month, as mortgage interest tax relief reduced by a further 25%. However, some recent reports have suggested that the situation isn’t as bad as it might sometimes sound, with investor intentions remaining surprisingly resilient.

Internally from Q4 of 2017 to Q1 of 2018, we saw an 18% increase in BTL purchase and remortgage enquiries overall. And new figures have shown that the number of BTL investors increased over the last tax year, raising to a record 2.5million. This looks to have been driven by the wider UK market, whereas traditionally London was a key focus.

Numerous reports have shown that BTL investors should be looking to regional areas, if higher yields are a concern. The Midlands is a key area of interest, with smaller cities like Nottingham reporting excellent growth and high demand. Meanwhile, landlords in the East of England have indicated that they are optimistic about the future of their lettings business.

Should investors ignore the London market? 

Despite general consensus that the London BTL market is facing problems, several sources have hinted at the shoots of recovery.  One report showed that market share for BTL applications in London had increased for the first time in a year[3].

This suggests that, despite concerns about capital growth, BTL property in the capital is still regarded by some as a good investment. Familiarity and convenience could have a part to play; if you’re a London-based landlord, the benefit of investing in a higher-yielding asset further afield may be outweighed by the inconvenience of maintaining the property from afar, once management fees are factored in.

In many instances, investors will be taking a long-term view. The market may not be buoyant now, but the current situation won’t last forever. It’s also a good time to drive a hard bargain, if the property you’re considering investing in has an owner who is keen to sell, despite the slow market.

So, ultimately, your preferences as a landlord will ultimately shape whether or not you should still consider the London market. If you want to use a BTL property as regular income, as well as a long-term investment, look further afield to the higher yielding areas where property prices are much lower but set to grow. However, if you’re happy to negotiate hard now and then play the long game, the London market still offers rewards.

So where should you buy in London?

If you are still set on investing in London, focus on areas which have a likelihood of being ‘the next big thing’ over the coming decade. East London offers some of the highest rental yields in London, with plenty of regeneration promised in areas like Stratford. Spots in West London offer lower yield, but the opportunity for capital gains is high.

Or, consider investing in BTL property along key London transport links. Prices in locations set to benefit from the launch of Crossrail have seen a significant uptick in recent years, so these are worth considering—it’s late in the day, but there’s still plenty of room for a price boost once the new line is fully operational. Looking further ahead still, properties with close proximity to HS2 stops could be worth considering.

What if I want to sell my BTL in London?

Ultimately, although there are signs of recovery in the BTL market, the conventional wisdom at the moment is that it is not the best time to be selling London property if you don’t absolutely need to. If you’re hoping to free up funds for other projects or reinvestment, refinancing could be a better option. You can then think about selling your asset once the London market is truly strong again.

It has undoubtedly become more difficult to secure BTL borrowing, which can be problematic for landlords who initially purchased their investment when finance was more freely available and now want to remortgage. However, there are still plenty of options available, like our product of the week. It’s simply a case of seeking the right advice.

What should I do next?

Whilst it’s always wise to be aware of the general market, the reality of what you should be doing with your BTL investment plans will always be tailored to your own circumstances. If you want a monthly income from property, look to regional investments. If you want to invest and watch your capital appreciate over the long-term, pick an up-and-coming area in London. Or, refinance to release equity, and invest in a higher-yielding asset of your choosing. Whatever you decide, the advice you seek will make a difference to your finances—so if you have any questions, get in touch.