On the face of it, buy-to-let property looks like a great investment but, if you dig a little deeper, you will discover a number of issues that will clearly show the real picture and why now is NOT the time to be investing in BTL
Over the last 20 years, the number of private landlords big and small has mushroomed peaking at over 3 million but that has fallen to 2.66, the lowest in over 7 years. Demand for rental properties is high and there are currently around 4.4 million private rental properties in the UK. Most of those investing in residential property for the buy-to-let market since 2009 have, over the last few years, done very well. This has been due to low acquisition costs, consistently low interest rates, their lowest in history, which has been 0.5% since 2009 as well as consistently high rents with an average rental cost in the UK of £689 per month. This has led to high rental yields and a great ROI. Add that to the impressive capital gains over the last 10 years and you will understand why so many people chose to invest in property and the buy-to-let strategy.
It is no surprise that those in the know have now started to sell off their BTL portfolios and take the profits as things are about to heat up and there is turbulence ahead. Especially those that are highly leveraged. This would explain a big drop in the number of private rental properties now registered in the UK.
The number of private rented homes and number of landlords in Great Britain
Why the Big Players Are Battening Down the Hatches
If you want to know what is going on in the property market you need to pay careful attention to what the big players are doing as they really are in the know. If you look at everything that is going on around us it is clear that there are big changes ahead and it is not going to be pretty. It could be the perfect storm with the pandemic being the tipping point. These last couple of years have been tough for most businesses and the knock-on effect is huge. This will undoubtedly affect the existing private rental market in a number of ways.
Average UK house price (£)
Property prices are at their highest and now predicted to fall, with some believing that there is an imminent crash just around the corner. This is not just due to the pandemic. Property prices follow cycles and after every boom there is a bust and it could be the property bubble is about to burst in the coming year or so.
Lenders have recently increased Interest rates and the Bank of England will likely raise theirs too. This is also just the start, it is possible that more interest rates will come as they did in 1992 when they went up to 16%.
Although there was little talk of it, the first part of 2021 saw the biggest drop in economic output in 300 years and inflation has had its largest ever recorded increase at 3% and economists believe it could go as high as 5%. The huge increase in energy prices has also taken us all by surprise and is sure to have a big impact on fuel poverty for families and put many companies out of business.
The Sterling Woodrow Offering:
Our senior portfolio managers handle everything whilst you receive your return on investment
High Yield Returns
Generate high returns for up
to 5 years.
Property investments have the opportunity for capital appreciation over time.
Hammering the private landlords
As if private landlords do not have enough to contend with, there have been several moves by the Government that have hit private landlords, like the removal of tax relief and the energy efficiency obligation. From 2018 all private rental properties had to have an energy performance certificate (EPC) of an “E” from the end of 2024 that has to increase to a ¨C¨or higher. This is not in any way easy to achieve and will be extremely difficult and very costly for many private landlords whose portfolio consists of older victorian style properties. Failure to reach the required standard could result in fines of up to £4,000 and they will be unable to rent these properties.
There are over 800,000 people in rent arrears to private landlords in the UK and this will only get worse in the coming months. Furlough has now finished and this has led to an increase in companies closing down as they are unable to recover.
Each of the points above have knock on effects in so many ways. These are the reasons that investing in the buy to let market as a private landlord is not a good idea today.
What some of our clients have to say…
I’m originally from Leeds but now live in Australia working as a university lecturer. It’s always been our aim to ultimately move back to the UK so I’ve taken an interest in the UK property for many years. I’m also very aware of the lack of accommodation for students close to major universities. A friend recently put me in touch with Sterling Woodrow and it was instantly apparent that these guys knew their market so my wife and I finally decided to invest.
First time investing into a fully managed investment. I made an enquiry online boasting 10% returns per annum. Within a few days I received a call from one of the portfolio managers Ben, who was extremely helpful and wanted to understand more about my goals and what I wanted to achieve than actually trying to sell the product which was a breath of fresh air. I received all the info and had lots of questions regarding the Hotel Investment, all of which he answered simply and easy to understand.
Whether you live overseas or in the UK if you want to invest in property it’s important to find an agent that will go the extra mile for you and that’s exactly what Sterling Woodrow did for me. Although I knew a lot already it was still good to have those guys available when I needed them and it didn’t cost me anything.
Enough of the Doom and Gloom What’s the Good News?
However, it is not all doom and gloom one area where a lot of the major players in the property sector are investing heavily is social housing. There is a severe shortage of social housing and, with the recent ITV news report exposing the horrendous conditions that some people are being forced to live in, it has been rightly described as a crisis and has brought matters to a head.
Councils across the UK have no funding available for acquiring new homes and rely on housing associations and charitable organisations who are also unable to keep up with the huge demand being put upon them. In an effort to try and resolve this serious issue, social housing companies and charitable organisations are looking to acquire large numbers of residential properties from investors, signing up to a twenty-five or thirty year, full repair and insure lease, with rental income supported by the government and local councils making this a very lucrative, stable and secure investment in these turbulent times.
Seasoned investors are now turning to this type of investment vehicle in droves, as it provides a simple turnkey solution that will continue to deliver high returns month-on-month completely hands-free.
The housing association or charity carries out ALL the service and repairs during the full term of their lease making it a potential worry and stress-free investment for investors.
Other benefits include the following:
For more information on Social Housing Investment contact Sterling Woodrow today.