Recent tax changes mean that investing in buy-to-let property will no longer deliver the returns it once did for many landlords, and yet investment levels in the private rented sector continue to pick up in London, according to a new report.
Following a temporary lull in buy-to-let activity immediately after the introduction in April last year of the 3% stamp duty surcharge on additional homes, Benham & Reeves Residential Lettings has seen a rise in the number of buy-to-let landlords looking to add to their property portfolios.
The agent’s findings also suggest that many landlords are not being deterred by the phasing out of mortgage interest relief, which is supposed to be dampening demand from this group of investors to the benefit of first-time buyers.
Marc von Grundherr, letting director at Benham & Reeves, said: “Predictions that a flood of landlords will abandon their buy to let portfolios have been greatly exaggerated. In fact, we have seen very few clients exit the rental market this year – in fact most are actively looking to invest further.”
Government plans to strip buy-to-let landlords of mortgage interest tax relief is widely expected to result in rent increases for tenants, as landlords, faced with significantly higher costs, are left with little alternative but to pass on at least some of the pain to tenants.
But von Grundherr is keen to point out that “robust” demand for rental accommodation is also placing upward pressure on rents, with Benham & Reeves seeing a 12.7% rise in letting transactions in the first quarter of the year compared with the same period in 2016, which is why he believes that “rental growth will outpace property price rises this year”.
“Property continues to remain a very stable investment in light of stock market volatility and historically low interest rates,” said von Grundherr. “The fundamentals continue to remain strong and that is why our outlook on London property continues to be bullish.”
The Battersea and Nine Elms postcodes, Paddington and Hammersmith are among the areas that have all been identified by Benham & Reeves as current buy-to-let hotspots.
“Professional investors have been able to navigate these legislation changes and capitalise on these localised rental hotspots,” he added.