There has been much debate about Brexit and how it will impact the property market and the economy as a whole. So how will it affect buy-to-let investors?
Generally, we have found that landlords and investors are split into two camps. There are those that worry about Brexit and are reducing their exposure to UK property as a result. There are others however, that see this as a huge buying opportunity.
It has been suggested that with less migration from Europe there will be less demand on the housing market and therefore less opportunity in the rental space. The fact is, however, that there is a continuing shortage of housing due to the chronic undersupply, coupled with high prices and mortgage restrictions. So more people are going to be renting going forward.
There is also an increasing number of tenants that are choosing to rent because it gives them flexibility. University graduates nowadays opt for the ability to leave at short notice to work in other parts of the country or even other parts of the world. Unlike earlier generations, they don’t want to be bogged down by a mortgage so early in their lives.
The rental market therefore will remain strong. The problem, however, is for buy-to-let landlords who are more concerned with protecting their profits in light of increasing taxation, stricter lending and increasing regulation.
The government has sent out a clear message that it wants to slow down the private buy-to-let market, despite the national housing shortage.
Bank of England figures show that while there was an increase in new residential mortgage lending activity in the first half of 2017, the share of buy-to-let (BTL) lending decreased to 12.5% in June 2017, the lowest percentage since Q3 2013.
It appears the government’s strategy is working. A significant number of individual landlords and investors quit the BTL market last year, thanks to the higher stamp duty costs and the phasing out of mortgage tax relief. Again in 2017, estate agents reported an increase in landlords selling properties across their branches [Source: The Association of Residential Letting Agents - ARLA Propertymark 2017].
The government is very misguided, punishing landlords despite the fact that they provide much-needed affordable rental accommodation across our towns and cities. What is clear is the property market in shifting. For those investors and landlords with larger portfolios, it is easier to ride the storm and absorb all the tax hikes. But for newcomers, or those with a small number of properties, the traditional buy-to-let model is broken.
This has given fuel to the buy-to-let crowdfunding firms that have launched in recent years. Today, people of all ages and socio-economic backgrounds, can invest in the buy-to-let market, via crowdfunding platforms, to generate both income and capital growth. This way of buying rental property offers a hands-off investment and the opportunity to spread risk.
Rather than having large amounts of capital tied up in property, investors take a share across a range of properties. Furthermore, it removes the regulatory burden from individuals because properties are management by larger, professional outfits that also benefit from economies of scale.
At any time, investors can realise their capital by selling a stake in a property, using their annual capital gains allowance. This gives them freedom that would not be provided by traditional ownership of a buy-to-let property.
Ultimately, it is not Brexit that is posing the biggest risk to the rental market, but government intervention. However all of us in the UK have always loved investing in property and luckily Crowdfunding is enabling us to continue investing and, what’s more, Crowdfunding now enables you to be totally hands-off.
Jatin Ondhia, co-founder and CEO, Shojin Property Partners.