Buy to Let in 2016 1st Apr 2016

Recent research (Ipsos MORI, commissioned by Shelter and British Gas) has revealed that approximately three quarters of young Britons believe it is unlikely they will ever own their own property and are likely to rent for the rest of their lives. 1,906 people aged 25-34 were interviewed for the survey, which also found that this age group have moved more than twice as often per year, compared to pensioners.

This research comes at a time when buy to let landlords are facing an uncertain future because of changes to Land & Buildings Transaction Tax; tax relief on mortgage interest; and changes to wear and tear allowance. However the research suggests that the future for many young adults is rental. And savvy landlords will be putting strategies in place to deal with the uncertainty.

Scotland, indeed the UK as a whole, is facing a chronic housing shortage. More houses need to be built – an estimated 30,000 a year in fact (last year only 16,270 properties were built in Scotland). There is a particular need for more affordable starter homes to meet growing first time buyer and buy to let landlord demand. The government needs to face up to the fact that unless they can get the planners (to release more building land), the banks (to finance the building of house), the builders (to build houses) and themselves together to ensure long term plans can be made and implemented, this issue will continue to worsen.

Unless Nicola Sturgeon and John Swinney start to rip up huge swathes of the Scottish countryside and build on acres and acres of green belt, demand will always exceed supply when it comes to property for the foreseeable future. Therefore buy to let investment could be the best move to make, as stock market investments are possibly on the wane.

And so a chronic housing shortage, plus a vast number of people wanting to rent, plus a possible exodus of current landlords due to fear caused by bad publicity in my mind equals a diminished supply of rental housing stock, making things more profitable for those who choose to stay in the game. I also think in a free market rents will end up being pushed up to compensate for additional landlord costs, and ultimately the buy to let market will adapt to the change.

We looked in March’s newsletter at how setting up a limited company (a special purpose vehicle or SPV) may protect small buy to let investors from tax changes, and a considerable number of landlords are looking into this, as corporate entities can offset mortgage interest against their tax bill as a business expense. Given this likely change to buy to let investors owning properties through SPVs, there will likely be a surge in mortgage lenders who will lend to SPVs, offering more flexible products and an increase in loan-to-value ratios along with competitive rates.

The glass is half full, not half empty landlords, and in my mind investment in buy to let is still a wise choice for many. However individual circumstances will dictate this, and advice should always be sought from those in the know. The Key Place can advise and so please contact us now if you would like information on anything discussed here.