Investing in buy-to-let property has long been a lucrative business opportunity for both recreational and professional investors, but could harsh tax changes start to outweigh the attractive yields and capital growth the market has to offer. 

The government’s introduction of the 3% stamp duty tax placed on secondary homes and the withdrawal of tax relief by 2020 has left landlords salves to the property market.

Since the BTL changes issued by the Prudential Regulation Authority in September last year, property experts, investors and landlords have been subject to regular scrutiny, with new punishing rules leaving hobby landlords unable to raise funds from mortgage lenders.

Due to the uncertainty and instability of the current property market, there has been a rush to place buy-to-let investments on limited company structures, resulting in an unwillingness from lenders to support such impulsive investments. Combined with the lack of lenders who possess the ability to read balance sheets and understand the laws affecting lending positions, it is clear to see why certain traditional lenders are struggling to keep faith in the process.

As a result of such uncertainties, some recreational buy-to-let investors are opting to invest in Houses of Multiple Occupancy (HMOs) in a bid to improve yields. However, few are aware of the new regulations in place that could have a significant impact such as the extension to mandatory HMO licensing.

According to data revealed by the Office for National Statistics (ONS), the punishing state of the property market isn’t just affecting investors, with tenants in London struggling to save deposits and a startling 49% of their salary being spent on rent alone. The rest of the UK doesn’t fare particularly well when it comes to property to income ratios, with a property costing around 3.6 times as much as earnings in 1997 compared to 7.6 times as much in 2016.

The daunting trends aren’t however seen throughout the Midlands with 42% of landlords in the East Midlands and 33% of landlords in the West Midlands claiming that tenant demand was steadily increasing. As a result of strong economic growth, a thriving education sector and government led schemes such as the Northern Powerhouse Initiative; the Midlands have been able to buck the trends that have devastated the rest of the country.

Despite worrying statistics revealed by the ONS and the current state of the market, a recent survey found that buy-to-let mortgages for property purchases have fallen by 40% since 2015, offering a glimmer of hope for the future of BTL investors. 

Punishing tax changes and the harshness of lenders may streamline the property market in order to benefit experienced and professional investors. Should the market undergo change in the coming years (which is likely), we can expect to see a decline in recreational investors looking exploit the market in a bid to secure fast capital growth and enjoy a continued rental income. Investors and landlords now require levels of expertise in order to keep up with the changes to the market as a result of political shifts and policies.

Mark Burns is the managing director of property investment firm Hopwood House.