Buy-to-let will always be a strong investment
Expert view: Andrew Turner, chief executive, Commercial Trust
Someone asked me yesterday whether I felt positive about the future of buy-to-let, a very reasonable question given the furore in the sector, but my answer was readily and easily “yes”. I want to tell you why, point by point.
The fear: If interest rates go up then margins of profit on buy-to-let could narrow.
The reality: Interest rates may well go up; they are currently set at 0.25%. Given the uncertainty of everything Brexit, Trump and North Korea-related, the Bank of England (BoE) knows it needs to achieve economic harmony as best it can, so a big jump in interest rates is unlikely to happen in the near future.
If you look at the last vote on this by the BoE’s Monetary Policy Committee, those that voted for a rise suggested 0.5%, which is still incredibly low and bears out this point.
The fear: The government will start building the 300,000 homes needed to dig themselves out of the housing crisis and the need for rental property will reduce.
The reality: Neither the Conservatives nor Labour have achieved house-building goals in over two decades of saying they will.
In the last economic crash, huge numbers of people were forced out of house-building trades. This means that, even if the government could put the structure in place to build, there are not enough people to do the work.
For this reason, housing will continue to be in short supply, house prices will be out of reach to many and rental property will be in demand.
The fear: The 3% levy on second homes will stop landlords investing in property.
The reality: This is one of the fundamental areas where the government has got it wrong. They have assumed that landlords are as emotional about their investment properties as they are about their homes.
Landlords run property investments as a business, just like any other business owner across the UK. A business has to make profit to be worthwhile. If costs to offer a service go up and demand for the service is sustained or heightened, a business will up the cost of the service to its clients.
Buy-to-let is the same.
The government has not helped tenants by increasing stamp duty tax to landlords, they have simply increased the rent bill.
And this is not callous, evil landlords wishing their tenants to live in poverty in order to pay the rent, this is business. No business can run at a loss or only break even.
The fear: Changes in criteria will mean that landlords will be unable to borrow the money they need to remortgage or purchase property and will be forced out of the market.
The reality: The new affordability calculations will impact some landlords. The sensible approach is to review your existing mortgage(s) and identify whether you need to adjust your investment strategy. The same goes for future purchases.
Lenders have responded swiftly to the changes and there are products on offer that present great solutions for landlords.
It is far better to take a proactive approach so that you are clear on your position. I am very much of the view that what some perceive as a problem is simply a challenge to overcome. My team knows I am always a man with a plan.
Mortgage interest tax relief
The fear: The withdrawal of mortgage interest tax relief will stop landlords making profit from buy-to-let property.
The reality: At the very beginnings of buy-to-let, profitability had a faster upward trajectory than a rocket on fireworks night. As with any investment type, there will always be peaks, troughs, and a levelling out in returns.
Profits from buy-to-let may not be the easy-money of days gone by. However, in the long term, bricks and mortar will commonly achieve capital growth. Making profit from rental income is simple accounting.
Yes, I feel positive about buy-to-let
I could not be more certain of a positive future for buy-to-let.
Commercial Trust as a company is growing; consequently, I am firmly putting my money where my mouth is on this. So, if you hear new voices on the phone when you call us, just take it as a sign that I am backing buy-to-let all the way.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.