Is property still a good investment?
In light of tougher legislation and higher taxes for landlords, is property still a good investment?
First, we had the George Osbourne 2015 finance act phsing out tax relief on buy-to-let mortgages. Tax relief will be gone by next year as will many property owners and landlords as they start to pay more tax and even struggle to show a return on their investment. This is a travesty and goes against all principles of business lending.
The then Chancellor George Osbourne also removed wear and tear allowance, which will cost small landlords dearly.
If that wasn’t enough, the government are now proposing new rules to do away with Section 21 notices, which enables landlords to legally regain possession of their property without having to give a reason or find fault.
Many property owners have already sold up or reduced the size of their portfolio in order to cut borrowing. Property prices in many parts of the country have dropped for a number of reasons, including of course Brexit.
Some see this as an opportunity to buy more property as so-called amateur landlords run for the hills.
Others worry that long term open-ended tenancies may be the beginning of the end for the buy to let business as we know it. The banks will certainly be concerned about gaining possession of their security in the event of a default on the mortgage.
The BBC and media have been all over the story citing cases of victims of unscrupulous landlords who apparently evicted them at short notice because they made a complaint about a repair job.
We usually only hear one side of these stories, which surprise me for two reasons.
One, most landlords would want to maintain the property in good order and any that do not are shooting themselves in the foot and giving the vast majority of good landlords a bad name.
Secondly, no landlord wants to evict a good tenant who is paying rent knowing that they will have a void and then have to pay an agent to get another tenant.
So what do I think of this?
These measures will not solve the housing crisis. If anything, it will make it worse as more landlords pull out of the market to avoid open-ended long-term tenancies. If this happens, rents will go up based on the simple economic laws of supply and demand.
Long Term Secured Tenancies
Private landlords were never meant to fill the gap in the market for long-term tenancies. Buy-to-let mortgages do not allow such tenancy agreements under the terms of a typical mortgage. Secured tenancies were traditionally was provided by council housing, which have not been built in any great quantity in the London area since the 1970s. Despite government encouragement and cheap borrowing, councils are often reluctant to build more council houses as they fear that they will lose them further down the road and the right to buy scheme. Many have even sold of housing stock to huge housing associations.
The government and local authorities must build affordable rental social housing as a matter of urgency. The current scheme of asking developers to give a percentage of the development over to affordable housing is just not working or providing enough stock. Frankly, in the south-east affordable housing is just not affordable. I have seen developers who cannot offload affordable housing even on shared ownership schemes.
Has Right-to-Buy Passed its Sell-by Date?
The government also needs to restrict right to buy in order to keep housing stock within the social rented sector and remove the excuse local authorities use to sit on their hands whilst spending millions housing people in expensive temporary accommodation.
The right-to-buy was a revolutionary flagship policy under Margaret Thatcher‘s Conservative government in the late 1970’s and 1980’s. It did a lot to help social mobility and allow people get on the property ladder. The problem is that the money from the sale of the council houses was not reinvested into building new stock.
Underlying Shortage of Housing in the UK
There is still a massive shortage of housing in England, as the population has risen sharply in recent years due to immigration and people living longer. Divorce also increased the need for smaller rental units such as studios in one-bedroom apartments. Net migration, the difference between people coming into the country and people leaving the country, has been running at around half a million people each year for years. A small city the size of Bristol would have to be built every year to just to cope with the number of new arrivals alone, according to organisations like Migration Watch. As this is unlikely to happen – as far as I know there is no plans to build another Milton Keynes or Basildon – there will be a strong demand for property for the foreseeable future.
Even if there are fluctuations in the market, the fundamentals and underlying demand will still remain. The U.K.’s population is set to hit 60 million within the next decade and they all will need somewhere to live.
As for this latest announcement, we don’t know exactly how the new rules will play out or when they will be implemented. We do know that the government do not want to go back to the bad old days of protected tenancies where a landlord could never regain possession of their property or increase the controlled rent. Until a few years ago, there were thousands of these properties with sitting tenants dating back to the 60’s and 70’s. Owners would sell off the properties at huge discounts at auction. Tenants were offered thousands of pounds in bribes to vacate. A good friend of mine used to buy these properties in London and then negotiate with the tenant to leave with a nice cash sum! They made a fortune. If we return to this situation, the supply of private rented accommodation will dry up.
Like it or not, the government needs private landlords as there is simply not enough social housing provided by councils and housing associations. Some corporate landlords are coming into the market but they are catering for the luxury end, such as in the city centre studios and co-living for young professionals.
So for all of the above reasons, I think there will be a demand for private rented accommodation even with anti-landlord legislation. Landlords are small business people and small business people are resilient to legislation changes and government red tape such as licensing (another issue for the sector to cope with). They will survive and adapt. Like Darwin said, it’s not the strongest species that survive, but the most adaptable.
Property is a long-term investment and there will always be challenges.
Landlords and investors need to keep abreast of new legislation by attending courses and seminars run by reputable organisations.
The National landlords Association is a good source of information and it lobbies the government on behalf of landlords.
Property still a good investment because you can use leverage or bank and other people’s money to acquire properties.
If you currently own property, I would not jump ship just yet. If you are planning to invest, I would proceed with caution and always educate yourself before dipping your toe in the market.
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Multiple Streams Of Property Income (Three days of world-class training)
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BPS ~ [21 May 19]
BPS ~ [30 May 19]
BPS ~ [18 May 19]
Deal Packaging Discovery Day (Half days training) DPD ~ [29 May 19]
DPD ~ [26 Jun 19]
Serviced Accommodation Discovery (Half days training) SAD ~ [27 June 19]
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Tax Discovery Day (Half days training) TDD ~ [05 Jun 19]
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Business Breakthrough Summit (Two days of business mastery) BBS Peterborough ~ [27 Jul 19 ~ 28 Jul 19]
There will be further courses on ecommerce to be announced.
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