What next for UK landlords?

By Ben Gosling of Commercial Trust Ltd

By Ben Gosling of Commercial Trust

By Ben Gosling of Commercial Trust

Now that the election has passed and the course is set for five years under an unexpected Conservative majority, landlords will be turning their attention to the future.

Buyer reticence affected some areas of the housing market in the run-up to the election. Prime Central London property was hit particularly hard, with average values falling by 8%, or nearly £140,000 – a recession-beating slump that has been blamed on Labour’s proposals to impose a 1% tax on properties worth in excess of £2 million if they got into office [1].

Labour had also adopted a controversially interventionist stance on the rental market, proposing three-year tenancies and inflation-capped rents. Critics said that the policies would hurt the supply of rented homes by discouraging investment; and indeed, after a strong 2014, gross buy-to-let lending appeared to peter out during the early months of this year [2]. This could be because prospective investors were fearful of the impact that a Labour government might have had on their business.

Is another property boom round the corner?

With the so-called ‘mansion tax’ dead and buried for at least five years, along with Labour’s headline pledge to remove the non-domiciled tax status, investment in expensive property – particularly from overseas – is expected to pick up [3].

The other end of the market is likely to see a pickup in activity too. The Conservatives have promised to keep interest rates low (despite monetary policy lying outside the Treasury’s direct remit [4]) and to top-up first-time buyers’ savings through the Help to Buy ISA. The extra 200,000 homes they have promised over the next five years do not meet the UK’s housing supply requirements, however, and critics believe that Tory policy does too little to abrogate barriers in planning and infrastructure [5].

Unless the government can make real improvements to the supply of housing, the demand-boosting measures they have promised to implement will see values soar over the next five years.

What does this mean for landlords?

Rising capital values are good news for landlords, but with house prices rising faster than rents, yields are likely to be squeezed in many areas, reducing operating income in the short to medium term.

Housing markets outside London and the South East were slower to pick up following the recession, but data analysis suggests that for both yield and capital values, most of the best spots are well outside the capital and surrounding areas.

The city of York was the number one location for capital growth over the last twelve months. Of the top ten locations, only three – Guildford, Woking and Kensington and Chelsea – are situated in London or the South East. In the coming months, values in the commuter belt are expected to rise more slowly than elsewhere in the country.

Meanwhile, Greenwich in London is the top location for rental yield. But landlords hoping for healthy cash flow who are priced out of the capital might consider the four runners-up: Peterborough (East Midlands), Newcastle (North East), Leeds (Yorkshire) or Salford (North West) [6].

 

References

  1. Boyce, L. “Election jitters wiped a staggering £140k off prime London homes in just three months with swanky apartments hardest hit”. This is Money. 14 May 2015.
  2. “Buy-to-let gross advances [XLS]”. Council of Mortgage Lenders. Retrieved on 15 May 2015 from www.cml.org.uk
  3. Clements, L. “Election 2015: House price boom ahead”. The Express. 8 May 2015.
  4. “Can the government really keep interest rates low?” Economic Voice. 17 Mar 2015.
  5. O’Loughlin, D. “Concerns raised on Tories tackling property supply”. FT Adviser. 11 May 2015.
  6. Clements, L. “Britain’s top 10 buy-to-let hotspots”. The Express. 13 May 2015.

This article is intended for information purposes only and should not be construed as providing investment advice.

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