If you are an existing buy to let property owner or thinking about investing in a buy to let property then it is not all doom and gloom. OK the rise in stamp duty and the tax reforms are difficult to deal with, but the demand for private rentals is showing no signs of slowing down anytime soon.
Buy to Let Research Study
A piece of research recently published about the private rental sector forecasts that the demand will surge significantly in the next few years. By the year 2025 there will be around 6 million households renting privately which is a big increase on the number of private rentals today.
Hamptons International conducted the research. They stated that despite the changes to the mortgage interest tax relief on properties for investment and the surcharge on stamp duty for additional properties, there is strong evidence to support huge growth in the private rental sector by 2025.
Hamptons explained that from April 2016 to 2017 there was an increase in private rentals of 164.000 and that this was a 3% increase on 2016. They also estimated that by the year 2022 UK households that will be privately renting will be up to 20.5% and today it stands at 19.4%. This trend will continue until 2025 where the number of households privately renting in the UK will be up to 22% or 6 million.
Cash Purchases more significant now
There was another very interesting finding in the extensive buy to let study. Properties purchased with cash were playing a more significant role than before, because a cash purchase is insulated from tax and regulatory changes. In 2017 there were around 67% of cash purchases made by property investors representing around £21 billion.
The Issue of Yields
Hamptons is fully aware that the growth in UK property prices has meant that buy to let property buyers are looking at smaller yields than before. This is especially true in the south of England. But the agency insists that it is still possible to buy intelligently and make the desired yields.
Here is an example of how it works. Yields in London average out to around 5.4% whereas in the North West the yields are higher at 7.9%. Despite this 20% of landlords in London are obtaining higher yields than landlords in the North West.
How is this possible? Well the London landlords are investing in a more strategic choice of property and location. They are choosing neighbourhoods and suburbs where the demand for this type of property is high and therefore achieving higher yields.
Buy to Let Returns
The Hamptons report also confirmed that landlords that sold properties in 2017 experienced a total gross return of 69% on average over a period of 8.5 years. The return was split 60/40. Rental income was responsible for 60% of the return where capital appreciation was responsible for the other 40%.
So the message is clear. Investing in buy to let properties is still a viable proposition with demand set to increase significantly over the next 7 years. In the south of England it is about smart investing and buying properties for cash will provide you with an advantage.