Buy-to-let is no longer a viable investment opportunity for many landlords due to the upcoming changes facing the market, according to Apropos by DJ Alexander.
The buy-to-let market has taken a big hit in the last few years with the government phasing out mortgage interest tax relief, and the property management firm believes that many landlords will, from April 2020, find the loss of tax relief on borrowings and the ending of capital gains lettings relief in almost all cases will be the last straw in maintaining profitability.
Apropos by DJ Alexander Ltd fears that so-called accidental landlords, in particular, will be adversely affected by the changes, and many of them will simply exit the market as they are no longer earning enough income from their property. This is despite an upturn in rental prices across the country.
In England, the annual rate of private housing rental prices has risen from 0.9% in September 2018 to 1.3% in August 2019.
Over the same period prices rose from 1% to 1.2% in Wales; from 0.6% to 0.9% in Scotland; but fell from 2.0% to 1.9% in Northern Ireland.
David Alexander, joint managing director of Apropos by DJ Alexander Ltd, said: “The improvement in rent price increases is welcome but comes at a time when many landlords feel the market is just no longer viable. The final phase of George Osbornes’ policy of decreasing tax relief on borrowing comes into force on April 6th.”
“For many landlords their net income may be 50-75% less over the last three years with lower returns to come in the coming year and the prospect of a smaller capital return when they exit. For those landlords in Scotland the situation in is slightly worse as taxation is higher. Over the last three to four years it has become more expensive to buy a rented property, more expensive to run it, and less profitable to sell it.”
Alexander continued: “Even with the uptick in rent prices we are still far from the best performing years. London peaked in June and July of 2012 when the annual price increase was 5.3%. Although London has experienced an increase in the last year of 1% it has not increased by more than 1% since August 2017 and between January 2018 to February 2019 was never above 0.2% and for eight months of this period was at 0.0% or below.”
“There is, therefore, some way to go before many landlords feel that the good times are here once more. All owners of investment property need to look at their finances, the way they operate, and the returns they are gaining and see if any elements can be improved.”
Alexander is urging landlords to review their circumstances, look at ways to reduce their costs and increase their income, and to look more closely at their property investments.
He added: “For some, perhaps, the best move might be to exit the market but for many others property investment remains a sound option as long as the landlord is organised, is partnered with the right professional advice, and is able to weather financial downturns and look at the investment in the medium to long term.
“Improving rental price is good news but it must come with a warning that prices may yet fall as the market shifts. Therefore, it is essential for landlords to look at all aspects of their business and work out the best strategy to not just survive but to thrive in the coming years.
“Property is not a static or fixed market and rental prices will rise and fall with demand, and investors and individuals must be prepared for all eventualities and respond accordingly. For the most entrepreneurial landlords this is a time of opportunity while for others this may be the time to exit the market.”