Is Buy to Let Dead?
The buy to let market in the UK really gained traction in 1996, with the opening of the mortgage market. This made property investment accessible to millions who had been previously prevented from seeking better returns through property, as opposed to the pitiful rates provided by their institutional pensions.
It proved immensely popular, and many people found the idea of property as a way to provide a retirement income preferable to putting their money in a traditional pension. However, over the last two years, these people have been ruthlessly stabbed in the back by the government who have crippled the ability of small landlords to make any sort of profit.
Not only has there been an increasing amount of red tape and financial burden placed upon landlords in recent years, but George Osbourne saw fit to increase stamp duty and, in an astonishingly cynical move, he decreed that landlords should be treated differently than every other type of UK business and would not be able to offset loan interest payments against revenue.
What this means for the large majority of landlords who have mortgages and do not operate under a limited company structure, is that they will incur heavy losses and could potentially be forced into bankruptcy, as their increased tax bill exceeds their rental income. What’s worse is that research indicates only a small percentage of landlords are aware of this cataclysmic change and the effect it will have.
It seems clear to me that the traditional way of investing in buy to let property that has thrived over the last 20 years is, as far as most people are concerned, no longer an option. Property, however, is destined to remain the nation’s favourite asset class but the types of property, and the way people invest in it need to change.
We, at The House Crowd, find the Government’s attack on, and lack of concern for small landlords, utterly reprehensible, but fortunately, we are in a position to help. Crowdfunding and peer to peer secured lending, have emerged as very popular ways people can build their wealth through property. Given the legal and tax changes, they now seem set to replace traditional buy to let as the best and perhaps the only way, ordinary investors can still benefit from direct property investment.
If you want a longer-term investment, secured with the ownership of real bricks and mortar, we have a steady stream of properties with assured rental – thus removing many of the risks and variables associated with property investment. These properties also produce a very decent return – a gross yield of 9.5% which should produce a net return to investors of at least 5.5% after all fees and costs. Investors will also benefit from any capital growth on sale.
So whilst buy to let may not be completely dead, it will really only be viable, after April 2017, when the tax changes take effect, via a company structure and payment of large deposits or through crowdfunding platforms.
What Will Replace Buy to Let?
Buy to let may have been killed off but the PRS (Private Rental Sector) has grown apace over the last few years, with property funds and other institutional investors pouring money into the sector. PRS, for those unfamiliar with the term, generally refers to purpose built blocks owned by institutions – generally with a high standard of communal facilities designed to attract and keep tenants long term.
The government is also now throwing its support behind PRS and the build-to-rent sector with large urban developments being financed by institutional funds and managed by large companies to cater for Generation Rent. For example, the government has announced that £45 million of its new £3 billion Home Building Fund will go towards kick-starting a deal involving 2,000 new build-to-rent homes. This includes 995 new purpose built units in Manchester, currently the city with the UK’s highest yields. Combined with the recent attacks on buy to let, it is likely that this will consolidate build-to-rent as the future of rented living and property investment in Britain.
Given the scale of the developments, and the money required to finance them, it is clearly not something readily accessible to individual investors. And, here again, is where crowdfunding comes into its own.
The House Crowd is ideally placed to help those people who are seeking a lower risk, longer term investment with build-to-rent. We are currently financing the building of over 100 units in the Manchester area and, whilst most have been built to sell, we will be introducing build-to-rent developments shortly with the intention of providing our investors with the ability to earn a steady annual return with the upside of long-term capital growth. Being a part owner of larger developments will also help mitigate risk.
We are, in effect, giving the individual investor, the opportunity to benefit from the growth of the build-to-rent sector and earn returns on par with institutional investors.
Best Places to Invest In 2017
It will come as no surprise to learn that I think Greater Manchester is the best place to invest, and I am not the only one, as many pieces of research forecast the same.
It’s not difficult to see why – Manchester offers the ideal combination of high yields and decent capital growth, something that London cannot. Predictions are that rents will increase by 5% in 2017, with capital appreciation to reach 4-5%.
The city has benefited from successive governments’ attempts to invest more money outside of London. Thousands of overseas students now come to Manchester each year, and it has fast established itself as an international talent pool with a booming rental population.
Manchester’s reputation as a property hotspot was recently reaffirmed by research from Lambert Smith Hampton, which revealed that 68% of property investors see it as the best place to invest.
I also see Stockport, in Greater Manchester, as a particularly strong area and think it should be at the top of the list for any investor hoping to achieve strong, consistent returns through property. Seven miles south-east of Manchester city centre and eight miles from Manchester Airport, the commuter town boasts direct rail services to Manchester, Liverpool, Birmingham and London. With a £42 million transport interchange under construction and £1 billion being invested across retail, residential and commercial sectors over the next five years, Stockport is establishing itself as a regional business hub.
Over the past year, property prices in Stockport have increased by 15.9%, and 1,100 new homes will be built over the next five years to cope with increasing demand. Properties in the area offer investors strong, consistent yields – a safer bet than relying on speculative capital growth.
Reasons to Invest With The House Crowd in 2017
- Specialists in Greater Manchester property – forecast by many experts to be the best area to invest
- We offer traditional high yielding properties with assured rental
- With over 100 new build properties either completed or in development, we are committed (in our own small way) to helping build the houses Britain needs
- We are ideally placed to capitalise on both build to sell and the build to rent sector – which, backed by the government, is believed to be the future of the rental market
- We enable access to individuals to participate in large scale developments investments with security and returns on par with those institutional funds receive
- Choice: we offer
- Short-term fixed-rate debt investments for those who want high returns and liquidity,
- Longer term equity investments where investors share in both income and capital growth
- No borrowing on property purchases means lower level of risk and less vulnerability to fluctuations in interest rates
- Crowdfunding provides perhaps the only viable option for most people to continue to invest in property