With an increasingly challenging landscape for buy-to-let property owners, many UK landlords are grappling with a crucial decision: whether to stick with their investments or opt for a change. The Telegraph breaks down the current situation, reasons behind the shift, and the potential pathways forward for those considering a move.
Why Are Landlords Reconsidering Their Investments?
Letting out properties was once the golden goose for many investors, providing both stable rental income and significant capital growth, often outshining stock market returns. However, several changes in the financial and regulatory environment have tipped the balance:
- Skyrocketing Mortgage Rates: The cost of buy-to-let mortgages has soared, leaving many landlords, especially those with multiple properties, in a challenging position.
- Stricter Regulations and Increased Taxes: New governmental policies aim to professionalise the rental market. Measures such as limited tax reliefs on mortgage interest, the Renters’ Reform Bill, enhanced energy efficiency standards, and the abolishment of Section 21 no-fault evictions have all piled on the pressure.
Anna Clare Harper, from GreenResi, warns that the upbeat times for landlords are seemingly over. These regulatory pressures, coupled with rising interest rates, are pushing many landlords to reconsider their positions, sparking what some are calling a ‘landlord exodus’.
Interestingly, the “casual” or “accidental” landlords – those who own fewer than five properties – seem to bear the brunt of these changes. In fact, over 80% of landlords are non-professionals, as per the English Landlord Survey.
Exploring Alternatives: What Can Landlords Do?
If you’re a landlord questioning your next steps, there are several options to consider:
1. Transforming Property into a Holiday Let:
With platforms like Airbnb gaining popularity, turning a property into a holiday let might be an appealing choice. However, James Forrester from Stripe Property Group cautions that regulations vary by region. For instance, in London, one can’t rent out for more than 90 days annually without specific permissions. Still, holiday lets can be lucrative in high-demand areas, reducing the chances of having a vacant property.
2. Property Redevelopment:
Another route involves enhancing your property to command higher rent. But it’s a double-edged sword: while there’s potential for greater returns, the upfront costs can be hefty. The current labour shortages also mean you might be waiting a while before work can commence.
3. Selling Your Property:
For many, the most straightforward option might be to sell. Anna Clare Harper offers several ways, from selling a tenanted property to another investor, using an investment agent, or even trying the auction route. A notable method is “rent-to-own”, where tenants buy the property over time, creating a win-win for both parties. However, selling might mean missing out on potential capital gains, especially as property prices are predicted to decline.
4. Stay Invested, Without the Bricks and Mortar:
Thanks to advancements in property-related technologies, landlords can now enjoy property investment returns without directly owning one. One emerging method is the Innovative Finance Isa (Ifisa), allowing individuals to invest in peer-to-peer lending and crowdfunding for property projects. Jason Ferrando of easyMoney mentions that Ifisas, offering higher interest rates than traditional Isas, are becoming increasingly attractive.
Making the Right Choice:
The road ahead for landlords is certainly full of choices. While some options might seem lucrative, it’s essential to factor in all associated costs, risks, and potential future regulations. Engaging with financial experts and staying informed can help navigate this challenging landscape and ensure the decisions made are in the best interests of both landlords and their tenants.