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| Alan Stewart |
By Alan Stewart, director and head
of Residential Lettings and Management
"Today, it is even more important
for anyone considering investing in a buy-to-let property to do their homework.
It can make the difference between a lucrative investment and a disastrous and
expensive failure. Location is always a key factor, whether buying to live in
or to let. Always consider market value, rental income and capital growth. Who
will let and manage the property? If an agent, the cost must be factored
in."
This
was the penultimate paragraph of an article I wrote at the end of 2014.
In
the intervening three months, the increased level of publicity regarding
property as an investment has prompted me to expand on the topic:
Recent reports
confirm that tenant demand continues and is outstripping supply. As a result, the buy-to-let sector remains
attractive for both larger property investors and first time landlords who, during
the downturn saw their savings diminish in real terms due to low interest rates,
poor returns and limited options.
During
2014, buy-to-let was the fastest growing segment of the mortgage market, and as
an investment option, there are many advantages.
Tax
breaks are available for buy-to-let properties that are denied for private residential
house purchases. In addition ‘allowable expenses and allowances’ permit landlords
to offset interest charges on a buy-to-let mortgage against their taxable
income. This makes it an even more
attractive proposition for investment.
As well
as reaping tax benefits and a regular income from tenants, there is the potential
long-term gain from capital growth when investing in bricks and mortar –
although it should be remembered that property prices can go down as well as up.
To
establish a realistic ‘bottom line’, management, accountancy and other
professional fees, void periods, maintenance costs, legislation and regulations
will all need to be factored in to the equation, but the yield may still be
attractive enough to entice a modern-day investor. It would be wise for any
first time buy-to-let investor to consult an expert.
Some
commentators predict an influx of buy-to-let investors releasing monies from
their pension funds could add to the problems of first time buyers. This may put the property ladder even further
out of reach for many first time buyers who currently find it extremely
difficult due to high prices, lack of mortgage options and the huge deposits
required, thus further supporting the strength of the lettings market for
buy-to-let landlords.
Generally,
buy-to-let and first time buyer properties are one and the same. In due course, first time buyers move up the
property ladder. Landlord investors
tend to hang on to their property. The
inevitable result will be a bottleneck, reducing options for first time buyers
even more than at present.
Currently
properties in good areas, with potential to provide above average rents, are in
short supply. This has a knock-on effect
and the level of investment required may affect long-term gains. Add to that a soon to be introduced EU
directive that, according to David Cox, MD of the Association of Residential
Letting Agents (ARLA) “…will require lenders to tighten affordability levels on
buy-to-let loans, making it harder for amateur landlords to obtain a mortgage”.
Urban
Sales & Lettings Ltd has conducted a study revealing pre-election nerves
have slowed investment in the private rental sector. This, they suggest, is due to uncertainty
around Labour’s intention to introduce a rent cap and longer fixed term
tenancies, and a worry that property prices would fall if they were in
government.
On a more
positive note, Knight Frank and accommodationforstudents research reveals that
student property is outperforming all investments.
My
colleague and associate director Duncan Reeves, who is head of residential and
student lettings in our Canterbury office says students are more demanding than
ever. No longer will six to a bathroom
suffice. Students, and their parents,
are not prepared to compromise, so anyone considering an investment in this
market would be wise to explore top end, purpose built property.
As head
of a successful and
professional student lettings organisations, Duncan’s experience is that the
first properties to let are those sensibly priced, located close to the universities,
decorated to a high standard with good quality furniture, modern appliances,
wi-fi and en-suite facilities. Less
popular are houses in multiple occupation, that were once so popular.
To
summarise, prospective property investors must do their homework: consider
whether student or professional tenants are the best option; location is
paramount; factor in all outgoings against income and then allow a sensible
contingency; remember property will show greatest gains over the long-term; and
finally, take advice from professionals who are experienced in the field.
