Is buy-to-let still lucrative for landlords despite the barriers?

 

The buy-to-let market has been hit by a number of hurdles in recent times, but investor appetite in the sector isn’t going anywhere as bricks and mortar is still the top investment in the UK.

More than four out of 10 UK landlords are expecting the private rented sector (PRS) to grow over the next year, while 17% are planning on expanding their own buy-to-let portfolios, according to a recent survey by specialist bank Aldermore.

The positive attitude from landlords flies in the face of the recent raft of changes that have been implemented in the market recently, and shows that the other side of the coin – the fact that more people than ever across the country rely on the rental sector – means that there will always be a place for buy-to-let.

Only 8% of landlords surveyed planned to reduce their property portfolios, but those that were said they were doing so as a result of the government’s changes, including added lending restrictions and higher taxes.

Tax is a challenge that landlords are rising above

Section 24, which has already begun to be phased in, will mean that landlords can no longer claim tax relief related to their mortgage payments and other borrowing costs linked to their properties, meaning that ultimately they could be liable to pay more income tax. According to the survey, 25% of landlords see this as their main challenge at the moment, while 22% saw the stamp duty surcharge on additional properties as their main hurdle.

Charles McDowell, Aldermore’s commercial director, said: “There is no denying that the buy-to-let market has taken a bit of a battering, thanks to a multitude of regulatory, underwriting and tax changes. However, we are pleased – and slightly surprised – to see there remains a net sense of optimism among buy-to-let landlords.

“Despite these changes, many still view buy-to-let as a good investment with expansion on the horizon, particularly among those who are specialists in this area.”

Landlords are looking to diversify

A separate report compiled by OneSavings Bank has also found that 51% of brokers in the UK have been contacted over the past six months by landlords who were hoping to diversify their portfolios to improve their profits.

Of these enquiries, 56% were related to landlords looking at branching out into HMOs (houses in multiple occupation), which are often a pricier option at the outset than a traditional buy-to-let but can generate good yields for landlords – although new regulation coming into play in October this year for HMOs could mean increased regulation.

Commercial and semi-commercial properties were also popular enquiries from landlords at 14% of brokers involved in the survey, and 9% said more landlords had expressed an interest in mixed-use properties.

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Is buy-to-let still lucrative for landlords despite the barriers?

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