Phil Spencer, known for his prominent role in the UK’s favourite property shows like “Location, Location, Location,” and his extensive experience in property buying, selling, and landlordship, offers a unique perspective on the trials and tribulations facing landlords today in today’s Telegraph. His journey in property investment is not just about short-term gains; it’s a long-term strategy crafted over two decades, focusing on maximising returns both as a rental business and an eventual sell-off plan.
The Squeeze on Landlords
Landlords are facing unprecedented challenges in recent years. Mortgage rates have experienced significant growth, with the average five-year fixed buy-to-let mortgage rate jumping from 3.4pc in October 2018 to a steep 6.32pc recently. This surge is only a part of the problem, as legislative changes initiated by the Government have further tightened the noose, making it increasingly difficult for landlords to profit from their investments.
Moreover, the general portrayal of landlords in the media hasn’t been favourable, often painting them as the housing market’s villains. However, Spencer urges landlords to remember their initial reasons for investing and to consider the long-term nature of property investment.
The Long Game in Property Investment
Property investment shouldn’t be viewed through a short-term lens. For Spencer, the properties he bought in the late-1990s in south London were part of a long-term strategy: providing housing for his children and generating rental income in the meantime. Like many others, he never intended a quick buy-sell for immediate profit. This principle holds for his other properties, where he focuses on development and maximizing value for both himself and his tenants.
Riding Out the Storm
Yes, the era of cheap money is over, but that doesn’t invalidate the worth of your investment. Property investment offers dual payoffs: the ongoing income from rent and the lump sum obtained from selling the property. Current market trends indicate a potential rise in rental income, with projected increases in rents due to ongoing housing supply issues.
However, the journey is not without its ethical dilemmas, such as prospective tenants feeling pressured to offer above the asking rent. Spencer advocates for transparency and honesty in these dealings, reflecting the demand for quality rental properties, especially in cities.
Understanding Property Valuation
A critical aspect of property investment is understanding that house prices are fluid. They don’t truly matter until you decide to sell. This is when the concept of “gearing” comes into play – the idea that your profit or loss is calculated on the property’s full value, despite only having put down a 10-20% deposit. This potential for high returns is a feature unique to property investment, compared to other forms such as shares.
The Current Dip: A Time for Patience
The market is currently experiencing a dip, and while it’s natural to feel concerned, Spencer advises holding firm. Even though some of his properties aren’t yielding profits due to increased expenses, he’s not rushing to sell. He recognizes the potential in these locations and believes they’ll eventually reach the anticipated value, affirming the importance of remembering your original reasons for investing.
Managing Properties: The Need for Support
Being a landlord can be taxing. Spencer recommends employing the services of agents and management companies to help navigate the growing sea of regulations. Having professional assistance can safeguard both your investment and your relationship with your tenants. However, he also emphasizes the importance of staying personally involved in major decisions, sharing a personal anecdote about giving a tenant with a complicated financial history a chance based on human judgment rather than just paperwork.
Considering a Limited Company for Tax Relief
With the increased financial strain on landlords, many are turning to setting up their properties under a limited company, mainly because of the tax reliefs this structure offers. While this strategy is gaining popularity, transferring properties into a company post-purchase can be financially draining due to stamp duty.
Regulatory Pendulum: Hope for a Shift
Spencer argues that the regulatory environment has become excessively stringent for landlords, penalizing the many for the actions of a few. However, he optimistically anticipates a swing back in the other direction, citing positive signals such as the Prime Minister’s recent step back on certain Energy Performance Certificate (EPC) regulations. With an election coming up, there’s hope for policies that recognize the essential role of landlords in alleviating the rental crisis.
The Vital Role of Landlords in Society
Despite criticisms, landlords play a crucial role in society. With insufficient social housing and a growing population, the demand for rental properties is skyrocketing. While there’s an argument that landlords might prevent first-time buyers from entering the market, the reality remains that a significant portion of the population relies on rental housing due to various circumstances.
Before You Decide to Sell
For those considering exiting the market, Spencer advises careful thought, particularly regarding your plans for the investment returns. Selling is not only stressful but also leaves you with the question of where to allocate those resources next. The money shouldn’t sit idle in a basic account; it should continue working for you, even if your profits have taken a hit.
To Invest or Not to Invest?
Given the current market conditions, Spencer candidly admits he wouldn’t enter the market if he were starting out now. However, for those already invested, the decision to stay or exit should not be taken lightly. Property investment is a serious venture, and any moves made should be well-considered, keeping in mind both current realities and future possibilities.