Is the End near for the Buy to Let Market?

The last year or so has been difficult for the buy to let investor, and whether you are a seasoned professional or new to the market, it would have been tough to keep up with the raft of reforms that have been placed on the buy to let sector. The list is large and although a little time consuming, should not deter a serious investor from looking at the property market. In general, these changes are designed to streamline and make the rental market a little more regulated, thus avoiding unscrupulous behaviour from rogue landlords who spoil what is otherwise a great sector to be in.

The demand for property continues unabated, and affordability for first-time buyers becomes more difficult, the rental sector will grow, and with that in mind, the government now feels the need to put in place a series of reforms, creating a framework within which both landlords and tenants alike are protected. If you are a respectable landlord, these changes should be welcomed as it not only aims to set a higher bar with better properties and maintenance levels, it makes it harder for the type of landlords that provide inadequate properties that are poorly maintained, creating a race to the bottom.

The key changes that have had an immediate impact are the stamp duty changes, the cost of mortgages, and the adjustment to the tax laws. The main reason behind this was to put the brakes on prices, again attempting to help first-time buyers get on the ladder and maintain affordability in the housing market. The cost of mortgages rising is a direct result of recent rate increases from the Bank of England, plus the fact that two schemes launched 5 years ago to help this sector, namely the Funding for Lending Scheme and the Term Funding scheme are both coming to an end later this year. Again, a decision to invest in this sector is one that should not be made lightly, but that is not to say that it is a bad place to invest.

So what can you expect if you decide to enter the market in 2018?

Returns of 10% are achievable, although returns of that magnitude are to be found in areas where the cost to buy property is exceptionally low, and typically growth potential is small. So if not that figure what should we expect to see elsewhere? Well, London typically tops out around the 3% mark, and that’s a generous figure in my opinion, whereas new areas of focus like Manchester, Liverpool and Leeds and the North West in general still offer both great ROI and also strong growth. Typically we suggest that Manchester city centre (and we mean the centre, not somewhere 1 mile out), can offer the smart investor anywhere between 4.5% to 7%, and the likes of Liverpool can still offer figures as high as 7% to 8%. Both of these cities are in the midst of a huge regeneration scheme, and with that the demand for property in these cities outstrips demand by some margin and that is likely to continue for the foreseeable future, despite the skyline of both cities being crowded by cranes looking like one large building site. With these returns in mind where else would you invest? Traditional assets that are considered good alternatives are struggling to get anywhere near property, namely government bonds with the average yields in 10 year paper sitting between 1.5-2.5%. Not very attractive when placed alongside the likes of property, and with equities at all-time highs, options open to you as an investor are limited where a great return is required, especially for pensioners where traditional annuity rates have been crushed. So is property a good place to place your money, and does the buy to let market offer a good option as a ROI, well it would seem the answer is a BIG YES, but one that should be looked at seriously, managed correctly, and costed out in a business plan to offer you the investor the biggest bang for your buck!

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