Following on from the success of last year’s Expert Round-Up – Can Property Still be Profitable in 2016? – TheHouseShop have rounded up some of the industry’s finest and most respected experts to discuss the future of property investment in 2017.
The Buy To Let investment landscape has become much tougher in recent years and is now far less forgiving of novice investors who struggle to keep up to date with the onslaught of new rules, regulations and legislation imposed on them.
However, with property investment still offering some of the highest and most reliable returns available, it seems that many investors have not been deterred by recent developments and still view the property as a “safe bet” for their money.
In this year’s expert round-up, we focus on the impact of 3 specific developments in the Buy To Let and property investment markets:
So, what impact will these new developments have on new and existing investors?
What are the other options available for British investors looking to make a high return?
And finally – Is property still a viable and profitable option in 2017?
Our experts share their opinions and guidance for the year ahead…
Managing Director, PropertyChecklists.co.uk
Kate Faulkner is one of the UK’s leading property experts. Kate regularly features on national and local TV, radio and newspapers giving her thoughts on the market, housing policy and carries out one to one advice on a consultancy basis for the industry and the general public.
“The beauty of the property as an investment is that whatever happens, there are always profits to be made for smart investors. However, many BTL investors have made money ‘by chance’ in the past and this approach will fail moving forward.”
“Any investor needs to first set and understand their goals, checking they are achievable, rather than ‘naively’ just believe the property will deliver. Our research for the UK’s first online Buy to Let TV Show shows that because of the tax changes, the potential returns from investing in property with cash versus investing in financial services has now changed. This means existing and new investors need to make sure property is still delivering the best returns, especially if owned with cash.”
“Demand with Brexit coming along could change in areas where migrant populations are a big proportion of the tenant population and it’s vital that landlords who have built their business model on this sector need to at least have a ‘back up plan if, for any reason, people do take the decision to return home or move elsewhere in the EU.”
“For me, investors need to surround themselves with professional, paid-for support from Independent Financial Advisors to Mortgage Brokers, Tax and Lettings Legal experts and stop trying to let ‘on the cheap’. Buy to let is a complex business investment now and needs to be treated and approached as such to be profitable in the future.”
Steve Bolton is a published author, influential mentor, successful entrepreneur and founder of the hugely successful and multi-award winning Platinum franchises. Steve is also the co-founder of the ‘Axe the Tenant Tax’ campaign, which aims to abolish Section 24 of the Finance Act 2015.
“This year has definitely been one of the surprises. Looking back to last year, would you have believed that the UK would vote to leave the EU and that Donald Trump would win the USA presidential election? An even bigger surprise is that there has been such an aggressive attack on the private rented sector at a time when there is a housing supply crisis in this country.”
“However, I still believe that property is still a safe haven for investors, especially when you compare the overall returns from property to other asset classes. And an increasing proportion of the population needs rented accommodation, in both the short and long term.”
“It’s now more important than ever to really know your numbers. Single-tenancy buy-to-let can still be profitable, but investors will need to take the hike in Stamp Duty and rental cover of mortgage interest payments into consideration.”
“Other investors will no doubt start seeing the benefit of investing in high yielding HMOs, but with higher returns comes harder work, planning and licensing. Having said that, it is one of the most robust and profitable investment strategies available and any landlord considering this route should do a lot of research and seek support.”
Head of Policy, Public Affairs and Research, National Landlords Association
Chris Norris joined the NLA in April 2007. As Head of Policy, he is responsible for the delivery of the NLA’s policy and public affairs agenda and public policy research programme.
“Investing in residential property has demonstrated strong returns in recent years. However, changes to the tax treatment of rental income and the generally negative perception of landlords have put many would-be investors off the sector.”
“Landlords are coming to terms with significant changes to the way they are taxed, the regulation they face and a great deal of political and economic uncertainty; all of which makes investment decisions difficult.”
“Relative to high-street interest rates, ISA returns, government bonds and many other low-risk investment vehicles, the combination of rental income and capital appreciation has represented a reasonable ROI.”
“In fact, despite the myriad difficulties faced by landlords today almost 9 in 10 reports that they are currently making a profit. Coupled with a professional attitude, appropriate training and a long-term financial plan, there is no reason why property can’t remain a profitable investment in 2017 and beyond.”
Founder, The Digital Marketing Bureau
James Dearsley is a global commentator and keynote speaker on the subject of real estate technology and was recently voted the most influential person in PropTech by mortgage lending and investing marketplace, LendInvest. James also is the Co-Founder of PropTech Consult, a firm that specialises in helping businesses understand the digital transformation in the real estate sector.
“Making a quick profit has probably gone to those that see property investment as a quick win. The shrewd investors can still do well but you will see that their mentality to investment has shifted as well as their attitude to improving their processes. Traditional buy to let investors are increasing profitability by looking at alternatives to high street estate agents and looking at fixed-fee models.”
“Equally, they are considering process improvements like online inventory solutions, document storage and ways to incentivise tenants using voucher schemes that reward loyalty.”
“There is also a mentality shift. Given recent tax changes, some previous landlords are looking at alternative ways to invest. Crowdfunding and other, more liquid forms of property transactions are growing rapidly. There is an appetite to a/ avoid additional dents in profitability whilst b/ giving an investor a more diversified portfolio.”
“Ultimately the attitudes of investors and property people are changing rapidly, the impact of such influence world events as Brexit and more specific tax challenges are only fuelling the changes.”
Property Expert & Co-Founder of TheHouseShop.com
Nick Marr is an online property entrepreneur with over 15 years of experience in the industry. He is the co-founder of TheHouseShop.com and has spoken to countless private landlords and sellers during his career, giving him unique insight into the market.
“2016 was a tough year for property investors, with a range of political factors impacting everything from landlords‘ tax affairs to property demand, mortgage lending, agency fees and everything in-between. In 2017, many of these same issues have become unwelcome and long-lasting hangovers for landlords, as the true impact of the Brexit vote and Section 24 tax changes are only just beginning to bite.”
In fact, with regards to Brexit, it is likely that we won’t feel the true impact of uncertainty and market volatility until we start getting concrete details from the lengthy 2-year negotiation process that has only just begun.”
“The main challenge facing landlords this year will be keeping up to date with the raft of new legislation and tax changes heading their way. Anyone with a financial stake in the rental market should be paying close attention to these developments and exploring the options to minimise damage to their investment. Whether that comes in the form of incorporating to improve your tax position or ditching a pricey letting agent in favour of self-management – there are many viable options available if you take the time to look.”
“It’s important to remember that it’s not all doom and gloom in 2017! The results of a recent YouGov survey we commissioned showed that despite the various changes in the market, the majority of Brits still view property investment as the best and safest option to generate a return on their long-term savings.”
“Demand for rental property is strong, and with the ongoing housing shortage in the UK, this is not likely to change anytime soon. This fundamental dynamic means that both professional investors with sizable portfolios and single-property “accidental” landlords, can still reap serious rewards from their rental properties in 2017.”
Chairman, Residential Landlords Association
Alan Ward has been a landlord and property developer in the private rented sector since 1993. He was one of the founding directors of the Residential Landlords Association in 1998 and has been the chairman since 2008. The association now represents more than 30,000 landlords across England and Wales.
“The return from renting is about four elements: capital growth, rental return and the cost of maintaining the property and managing the tenancy. So, feast or famine depends on what you mean by profitable – short or long term? Net or gross? And the election result has added at least a temporary uncertainty to it all.”
“While gross earnings can be quite high in terms of return on investment, however maintenance, management and risk are also likely to be high. And there is a likelihood of voids and arrears and in low-value properties, you are unlikely to be getting capital growth.”
“Alternatively, you can look at where there is high demand – for example along the Crossrail route in London, where values in recent years have been rising relative to other areas. Then you might look at the threats. Regulation is one, the increasing prevalence of licensing and the costs involved. In some areas, councils are charging £1,000+ per property which, from a landlord’s point of view is dead money.”
“The biggest impact of the ex-chancellor’s budget will be the tax on turnover rather than profit – and this depends on the landlord‘s level of borrowing. Investing in property and being a landlord was never going to be a short-term investment – you have to be robust in terms of investment and the way you manage your property. The bottom line is buy-to-let may still be a profitable business, subject to whatever the new government may throw at us and you do your homework. It’s not a market for dinner party landlords.”
Author, The Accidental Landlord
Martina Lees is a property writer and columnist for The Sunday Times who has won Property Press awards for her in-depth coverage of the housing crisis and buy-to-let. She is also the author of ‘The Accidental Landlord: The keys to letting out your own property with complete peace of mind’.
“At least a quarter (or 500,000) of Britain’s landlords start out accidentally when they let a property — often their former home — that they did not intentionally buy as a rental investment. Some do so after moving jobs, partners or countries; others inherit property or struggle to sell so let instead.”
“Uncertainty around Brexit is, however, adding to a general economic slowdown which has seen property prices rise much more slowly than what we’ve been accustomed to. This means you should not depend on a quick return from buying and selling unless you are able to buy far below market value in the first place.”
“Many accidental landlords will only realise how much the tax changes, phased in from April, will cost them when they file their tax return next year. Don’t wait until it is too late. Work out how it will hit you. From 2020, when the rules take full effect, you will no longer be able to deduct mortgage interest payments as a cost before working out a profit. Instead, you will apply for a 20% relief after you’ve arrived at your profit, but before you calculate your tax.”
“Owners in the higher (40%) and top (45%) tax brackets will pay more. Those with big mortgages in expensive areas, especially London, may shell out more in tax than the let earns. What you do next depends on your circumstances, so speak to a tax specialist. Don’t rush into transferring your flat to a company: that could mean paying capital gains tax and stamp duty when you “sell”.”
Professional Landlord & Property Investor, richardblanco.com
Richard Blanco buys, lets and manages properties in six London boroughs. He is a regular presenter of House Hunters International which broadcasts across the USA & Canada and presents the NLA podcast ‘Inside Property‘ on Share Radio.
“Uncertainty around Brexit, the economy and the government’s policy towards housing and the private rented sector continue to cast a shadow over property investment. Brexit uncertainty has already caused a slowdown in house prices and rental demand. Investors could either see this as a time to hold and wait and see or try to snap up a bargain.”
“Landlords need to join a trade body to stay abreast of all the changes, that’s probably why NLA membership rose by 16% last year. 60% of landlords fail to provide tenants with the government’s How To Rent booklet, denying themselves the right to serve a section 21 no-fault eviction notice. This is one indicator of a lack of understanding and compliance across the landlord community, with investors laying themselves open to expensive sanctions.”
“The new definition of HMOs is on the horizon, licensing is on the increase, Right to Rent is being rolled out to Scotland and Wales and we may well see compulsory 3-year tenancies in the future. Make sure you have risk assessed your portfolio and plan ahead for these changes.”
“Many letting agents will have to reduce costs, but they may well be doing already as the market slows. A broader issue is the quality of service provided by agents. The minority of excellent agents are overshadowed by a sizable number that offers poor or mediocre service and we need to see regulation of this sector.”
Co-Founder, Property Tribes
Senior Technical Manager, John Charcol Independent Mortgage Experts
Ray joined John Charcol in 1989 as a consultant. He has been Technical Manager, then Senior Technical Manager, since 1998. Ray is on the Board of the AMI, having been a founder member in 2003.
“The impact of recent tax and mortgage regulation changes is much greater for those with a large mortgage and the direction of travel is very clear, although in respect of mortgage regulations it is fair to point out that tighter regulations on affordability and stress testing imposed by the Bank of England from this year follow similar rules previously introduced for the residential market, but are less onerous.”
“Tax can be reduced by owning the property through a company as the tax on properties owned by a company is still based on the profit, rather than the rent being treated as taxable income. Consequently, some lenders offer a larger mortgage on property owned by a company.”
“Property prices have been flat for about a year and this trend looks set to continue. Therefore, with less prospect of significant capital gains in the short term BTL investors need to focus more on achieving good rental returns.”
“Some investors and letting agents have brought the letting fees ban on the sector by imposing fees disproportionate to what they were claimed to be for. Although investors and letting agents will now have to absorb these costs the ban is likely to result in a reassessment of current procedures, with an incentive to reduce costs which weren’t there when someone else was paying the bill. The ban is likely to have more impact on letting agent’s profits than investors.”
Director, Property Investments UK
Robert Jones is Director of Manchester Based Property Investments UK, focused on supporting the UK and International Investors with Online Education and Handpicked Property Investments.
“Brexit created a level of uncertainty initially and continues to make some investors stay in a holding pattern until they know more, however, we have experienced a real increase in enquiries from overseas investors from across the World from China, Singapore, Europe and India since Brexit was announced.”
“Section 24 has certainly seen investors change their approach to purchasing, with many now considering investing via a limited company however, having spoken to a range of new (and existing investors) who are considering investing in property in 2017, it is clear it hasn’t completely stalled interest.”
“The banning of letting agents fees I think will start to increase letting costs as it will need to be picked up initially at the point of service by someone and the likely outcome is extra fees to landlords with some letting agents absorbing costs, but the likely long-term impact is that this will be factored in to rent rises as many landlords likely try and recoup the extra fees paid, ultimately meaning tenants could still end up covering the cost indirectly.”
“Overall 2017 has been stronger in interest (to date) than 2016 from existing and new investors from our direct view of the UK property market and signs continue to look strong in properties, locations and strategies that focus on high yields and incomes as a priority.”
Director & Editor, PropertySecrets.org
Daniel is the Director & Editor of propertysecrets.net and runs three Property Investment-related companies Residential Buyer Ltd, Marco Gp Ltd & Homesale Ltd.
“House prices have already stagnated (some have fallen) in the lead up to the ‘snap’ election called by Theresa May, but the outlook will be positive when we get back to ‘business as usual’ and if a soft Brexit is tabled. The interesting theory is if indeed a harsh Brexit forces the GBP low enough to make it uninvestable outside these shores, perhaps forcing British Citizens to invest closer to home.”
“But for any short term falls there will always be long term gains. The property market crash of 2007 was lifted mainly by ‘savvy’ cash-rich investors who purchased at ‘rock bottom prices. Not saying things will get quite so bad in 2017 but investors should stay vigilant and look for market falls to get the best value for money.”
“It’s an attractive market and not near as volatile as it was during the 2007 crash despite Brexit negotiations creating an air of uncertainty to our forward-thinking…I think that investors are aware of this which is shown in the recent stagnation in market price. This may at worst dip short term but once the picture is clear it will start to rise again at a similarly steady pace to how it has done over the last few years.”
“The only questions for investors are a) do they invest now whilst prices are still favourable or do they b) wait to invest if and when the market dips or do they c) stay clear and wait until the Brexit negotiations are over and the market looks to have more stability?”
Managing Partner, Black Brick
Camilla Dell is Managing Partner and founder of Black Brick Property Solutions LLP and has worked in the London property market since 2002. She is highly experienced in meeting the needs of demanding domestic and international property buyers.
“It’s still too early to tell exactly what impact Brexit will have on London’s property market. There are simply too many variables at play to confidently predict how leaving the EU will influence the supply of and demand for property in the capital. Probably most important is the access of the UK’s crucial financial sector to the EU market but the range of outcomes is wide.”
“Since the tax changes that came into effect in April, capping the amount of tax relief landlords can claim against interest payments, buy-to-let landlords really need to do their sums and make sure not to leverage too highly, or they could find themselves in negative cash flow. For higher rate taxpayers with high levels of borrowing against buy-to-let properties, this will lead to significant increases in their tax bills.”
“There is over a third more rental property available today compared to a year ago due to a weakening sales market. Therefore, it’s really important to identify which areas are undersupplied and purchase the right kind of buy-to-let that will rent quickly and have minimal void periods.”
“Our investment clients accept that the yields available on London property are low and, as such, they are more interested in long-term capital growth. They are increasingly looking outside of the traditional areas of Prime Central London, where gross yields are less than 3% and looking East where the yields are slightly better, around 4 to 4.5% but the prospect for capital growth is stronger. With rents down almost 5% in the last 12 months, landlords are having to accept that the returns from highly geared properties will no longer be as attractive as they once were.”
Founder & CEO, EyeSpy360
Andrew Nicholls is the Founder & CEO of EyeSpy360. the World’s leading self-service Virtual Reality & 360 platforms. Their platform enables end-users to take 360 photos in 2 seconds, upload and create fully immersive tours within minutes and distribute instantly across Desktop, Tablet, Mobile and Virtual Reality headsets. With clients across 39 countries and 6 continents, they work with some of the biggest brands around the globe.
Chief Operating Officer, Reposit
Jude Greer is COO of Reposit. Reposit provides an online alternative to the tenancy deposit system in the UK, providing affordability for tenants and enhanced security for landlords.
“The fee ban will hit letting agents hard and supply fresh ammunition for the online/high street battle. Sadly, it’s the smaller agents who will feel it hardest, those who have great customer service, local knowledge and often aren’t charging extortionate rates.”
“However, ready or not, the ban is coming and renters are rejoicing…they have been struggling with rising rental costs for years. Fees not only cost renters up to £780 per tenancy, but some letting agents prioritise shorter, less stable tenancies to maximise profits. I’ve even heard of some charging ‘renewal fees’ for continuing a digital contract. These practices undermine positive renter/landlord relationships and it’s right there stopped.”
“Reposit was started to reduce costs for the 97% of tenants who treat rental properties as their own home. Tenants currently up-front hundreds in fees they’ll never see again and a deposit which sits gathering dust (not interest). With Reposit they only pay one week’s rent initially, less than 20% of the standard deposit, and each time the tenant moves this fee lowers with good behaviour.”
“Despite being renter-founded, we want to help solve problems for the UK’s honest agents. We pay agents a commission for every Reposit that a tenant signs with them, providing much-needed revenue in light of the ban.”
Regional Sales Director, Portico Estate Agents
Mark Lawrinson is the Regional Director of Portico London estate agents and also a landlord himself. He has been in the property industry for over 10 years and is currently looking after Portico’s east and Essex offices.
“Brexit came at a time when the market was already beginning to suffer as a result of the SDLT changes in 2014 and the additional 3% SDLT for second properties in 2016. The market was simultaneously suffering from a severe lack of house building which was causing property prices to rocket – in fact, there were just 32,000 affordable homes built in the year to March 2016.”
“Section 24 tax changes felt like an attack on the industry – and on landlords. We’ve seen fewer buy-to-let properties being purchased because of the tax changes, which has resulted in a reduction in the number of properties coming to market. With that said though, most landlords are now factoring in the changes when purchasing an additional property.”
“With the correct planning, you can still make a lot of money from property. But unlike pre-2007 and even the past few years, the ability to make money requires great thought and attention rather than being able to lazily ride a rising market.”
“Overall though, when you look at the performance of property compared with other asset classes, it’s actually quite incredible what leverage property can do, returns wisely. People will still thrive in the property market for years to come, but the changes of late mean we need to evolve to move forward.”
So there you have it – the experts have spoken! It may be a mixed bag for landlords in 2017, but it’s not time to run for the hills just yet.
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