Despite the uncertainty for the year ahead, the UK rental market will likely remain resilient. How can landlords and investors adapt to changing rental trends and property investment taxes in 2021?
In 2020, buy-to-let landlords reached an all-time high of 2.7m. Despite tax changes for property investments in recent years, landlords and investors have found ways to adapt. And the sector will continue to find ways to adapt even with changing rental trends and taxes.
Recently, there has even been a substantial increase in demand from first-time buy-to-let landlords. With low mortgage rates and more subdued house prices, many investors will likely look to lock in competitive interest rates and house prices in 2021.
Investment from foreign buyers
Foreign buyers and investors continue buying at strong levels, especially those from Asia. Interest from Hong Kong buyers is expected to surge in 2021 as a special visa is opening to British National Overseas passport holders in Hong Kong on the 31st of January. This visa provides a new path to citizenship and is expected to lead to an influx of demand in UK property from buyers seeking citizenship.
The UK will continue to be a safe haven to invest in. The pound will likely remain relatively weak compared to other major currencies. This will make it an attractive time for overseas buyers to invest in UK property. Additionally, the UK housing market has remained resilient even through economic and political uncertainty.
An additional 2% stamp duty surcharge comes into effect for overseas-based buyers in April. This new tax on foreign investment is unlikely to deter overseas buyers in the future as the fall in sterling and UK’s strong property market more than make up for this additional tax.
Potential property investment tax changes
COVID-19 will leave a substantial toll on public finances. Because of this, many are predicting property tax changes to come into effect soon. If property tax rises come into play, buy-to-let landlords and investors will change the way they do business. Recently, many have successfully adapted to a range of tax and legislative changes.
There has been talk of an overhaul on capital gains tax. Buy-to-let landlords and investors will change how they do their business if a higher capital gains tax regime comes forward.
Nick Barnes, head of research at the estate and lettings agency Chestertons, comments: “A mooted higher Capital Gains Tax regime would affect second home owners and investors but could prompt a flurry of sales to beat the deadline.”
Renting will remain popular
The rental market has performed strongly, especially during the last half of 2020. At certain points in the year, demand in the private rented sector was 20% higher than in 2019, showing rental homes have been hot properties.
Across the UK, renting will likely continue to be on the rise throughout 2021. Job uncertainty will lead to people continuing to rent for longer. And as saving account interest rates are at record lows, many are struggling to save up enough for a deposit.
Nick Barnes says: “Once Covid restrictions are removed we anticipate at least a partial return to normal office working which will bring a rise in demand for rented accommodation.
“A return to more normal life will also see the return of international students and corporate tenants. An anticipated worsening in affordability in the sales market will drive more people to rent.”
Tenants changing priorities
Currently, rental trends are reflecting what homebuyers are looking for as well. Tenants are increasingly looking for larger properties, better internet connectivity and outdoor space, whether through a garden or balcony.
The build-to-rent sector in particular saw record investment in 2020 and is expected to grow even more in the next year as it provides attractive rental accommodation for tenants. Build-to-rent developments often offer appealing amenities, such as home office space and shared workspaces.
Online letting agents Portico Direct explains: “Tenants have been moving in increasing numbers to upsize their properties or look for properties with gardens so they can work from home comfortably.
“The message for landlords in 2021 is that they have to adapt to these changing requirements whether they’re buying for rent or building for rent.”
