Over the past two decades, buy-to-let has become a popular opportunity for investors seeking to take advantage of property as an asset class.
By purchasing a house or flat in addition to their primary residence, investors stand to benefit from regular rental yields and the prospect of long-term capital growth.
Yet despite these advantages, recent reforms to the regulatory framework governing the private rental sector are actually dissuading investors from creating or expanding their buy-to-let portfolios.
Simply put, landlords are feeling overwhelmed and ill-informed by the constant wave of changes they feel are negatively weighted against them.
Recent research by FJP Investment puts this issue into perspective.
According to a survey commissioned in January 2021, 68% of landlords feel that buy-to-let investments have become a far less attractive prospect over the past five years.
This is a concerning statistic, demonstrating that the vast majority of landlords are generally not satisfied with the direction of the buy-to-let market since 2016.
Of course, there are plenty of reasons that could account for this dissatisfaction. We cannot downplay the impact of COVID-19 on the rental market.
According to recent BDRC research, over 80% of landlords feel they have been negatively impacted by the pandemic. The same body of research also reported that some have also seen a reduction in rental income achieved during the period.
To protect the livelihood of renters adversely affected by the pandemic, the government has put in place a ban on evictions which will remain in place until 31st May 2021. This is an understandable measure given the disruption caused by the coronavirus.
A complex market for landlords
However, the frustrations of landlords go well beyond the initial disruption caused by COVID-19. Ever since the government introduced a Stamp Duty surcharge for applicable buy-to-let property transactions, dissatisfaction has been slowly rising.
The overwhelming majority (71%) of landlords and property investors told FJP Investment they feel they have been unfairly targeted by the Government through tax reforms and new regulations since 2016. Of course, regulation is warranted to ensure the rights of both tenants and landlords are protected.
However, regulation is only effective when it protects the interests of all parties involved in the private rental sector.
The reduction of income tax relief for landlords, the banning of letting agent fees for tenants, and ongoing changes to basic HMO requirements are some of the reforms landlords have had to adjust to
On this basis, two thirds (67%) of landlords said that in the future 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. What this means is that investors are looking to new ways of accessing property investment opportunities beyond the more traditional buy-to-let model.
In the UK, there are plenty of options to consider. These range from property investment funds, to real estate investment trusts to commercial property funds and loan notes.
Investors could also take advantage of build to rent projects should they wish to still benefit from regular rental yields without the added complications of managing a rental property.
Property remains a popular investment avenue
While landlords are indeed frustrated by their recent experiences with the buy-to-let market, it does not mean they are being deterred from property as an asset class.
The fact that house prices grew on average by 5% in 2020 demonstrates that even during a pandemic, there is clear buyer appetite for real estate. Should the UK effectively transition out of lockdown, I’d anticipate this level of demand to remain consistently strong.
That being said, based on the findings from FJP Investment’s research, we could see more landlords selling their properties and looking to new ways of benefiting from the capital growth on offer from real estate investment.
This could be accelerated further if the government looks to introduce additional regulations which ultimately add to the complexity of renting out a property.
Nevertheless, I am confident about the future prospects of the property market. While the way people access new investment opportunities might change from direct investment to other avenues, this does not change the fact that real estate will remain popular for investors seeking a resilient and secure asset.
Author: Jamie Johnson, CEO of FJP Investment