There have been many news reports on the supposed decline of the buy-to-let market recently, but there’s plenty of evidence to suggest there are still great investments to be made. A leading property fund manager recently told the media about some of the key UK areas for investments, stating that ‘a good home finds a good tenant’. Read on to learn more about why turning your back on buy-to-let opportunities in 2019 may be big mistake.
Many great reasons to invest
Hearthstone fund manager Alan Collett claims there is still a great deal of money to be made on the buy-to-let market in spite of rising interest rates. Mr Collett, who oversees one of the UK’s few residential property funds, says there are many great reasons for investors to take advantage of the opportunities available to them despite the slower property market, the withdrawal of tax relief on mortgage interest and the way landlords are now paying tax on revenue as opposed to profit after their mortgage costs. A 3% surcharge was added to stamp duty for new purchases in 2016, leaving new investors faced with bigger costs. The automatic wear and tear allowance is also a thing of the past, with the Bank of England launching tougher affordability measures. This means mortgage lenders are now asking landlords to display more substantial rental incomes in order to qualify for the same mortgages. All of this has resulted in many landlords exploring other investment opportunities.
Could rising interest rates cause growth?
Mr Collett said there were still many worthwhile opportunities for investors. He said rising interest rates could cause house price growth due to the way that rates were ‘tied to the economy’ and factors such as income and employment, which have a considerable impact on house prices. He pointed to the fact that earnings have risen with property prices in areas like the North of England and the Midlands. Though the Bank of England’s extreme stress testing suggested a potential 35% reduction in house prices, this has not been mirrored in many other leading independent forecasts, with just one expert predicting an overall fall in house prices of 3%. That was just for 2018, and there were no declines predicted for future years. Mr Collett said the property sector’s well-known defensive qualities would apply even in a post-Brexit crisis and have protected the market in historic catastrophes.
Other influences on house prices
The investor emphasised the fact that house prices weren’t influenced solely by the health of the economy, citing housing supply and consumer demand as other big factors. The Royal Institute of Chartered Surveyors has said new landlord instructions have fallen following buy-to-let tax changes, with Help to Buy and stamp duty initiatives creating more demand than supply, yet Mr Collett says tenant demand also remains “resilient”. Around a fifth of UK households are paying rent, with this number set to rise in future due to factors like population growth and longer rents. RICS expect rents to rise by almost 2% in the next twelve months, soaring by 15% in the next five years.
Choose the right locations
Investors are encouraged to purchase homes in areas with an active resale market and good rental demand. Mr Collett said his organisation focussed on regional hotspots, assessing data related to rents and house prices as well as factors such as employment opportunities, travel patterns, accessibility and the local economy. Other key factors including types of available housing, availability, rental demand and tenant profiles. Investors can also seek out modern properties with modest maintenance costs. In market towns and small cities, there was a greater emphasis on houses, with flats being the preferred choice in bigger cities. All properties were considered to be potential places to live by Mr Collett’s team.
Main performance concerns and key locations
Mr Collett said remarketing costs and empty properties were two of the biggest concerns when it came to performance. There was a substantial focus on selecting homes attractive to longer-term residents, with tenants remaining in homes for at least two years in many cases. The Midlands was cited as one of the most thriving areas for buy-to-let investment opportunities. After investing in a Nottingham housing development and securing a bulk discount in an area near to services such as schools and transport links, his company was now seeing rents some 10% higher than previously predicted.
The south-east market
The Colchester area was also cited as an up-and-coming location for investment opportunities, despite the inferior house price growth. Rental demand remains strong in this part of the south-east thanks to factors like the strong local economy and quick London commute. Mr Collett’s team were attracted to a development near Colchester due to its transport links, the wide range of quality amenities and picturesque riverside views. His firm was able to secure a bulk discount of just over 10%, with properties being let out quickly in line with valuations made prior to the purchase.
Despite reports of falling house prices and rents in London, Mr Collett said the capital remained a highly lucrative location for investors. The London properties held by his firm saw no reduction in value and included studio, one and two-bedroom flats located in Wembley Park. These properties were chosen due to the long-term regeneration work taking place in the area, easy access to quality amenities and outstanding public transport links. He said he intended to keep hold of the vast majority of his firm’s London holdings in order to benefit from strong demand. A pair of flats were sold in order to free up funds for new opportunities. Mr Collett said a large number of opportunities for buyers and sellers were available in spite of some parts of the market becoming “subdued”.
Taking another look
If you have considered exploring other investment opportunities, it may well be time to see what the buy-to-let market has to offer in 2019 before you walk away completely. Your next lucrative buy-to-let investment could be just around the corner. Get in touch with the expert team at Aspen Woolf, who can help you find a great investment opportunity and offer advice on the best way to manage your investment.Whether you’re looking for your first property investment or you already have an established portfolio, check out our Ultimate Guide to Buy To Let Investment.