How the UK’s BTL property market is changing


Sometimes
changes are obvious, but often they creep up slowly, over time, until the
accumulated impact makes people sit up and take notice. Here are some of the
ways the UK’s BTL property market is changing – and what it means for BTL
landlords, existing and potential.

Regulation and tax changes have
made the sector more professional

Long
gone are the days when you could just buy a property and put up a “to let” sign
in the window (or even on the internet). Modern landlords are now expected to
deal with a raft of legislation.

Much
of this, to be fair, simply makes it a legal requirement to apply common sense
and basic standards (for example undertaking relevant safety checks). Some of
it, however, is more questionable.

For
example “Right-to-Rent checks” essentially turn landlords into unpaid immigration
agents who can be penalised if they fail to do their job properly (unlike their
paid counterparts) and local authority licencing schemes can give the
impression that they are more an exercise in gathering revenue than in
improving standards.

Many
“accidental landlords” have decided that they can’t or don’t want to deal with
this and have therefore exited the buy-to-let property sector. As a result, those who remain, or are considering
entering the sector typically have a much more professional approach.

It’s becoming increasingly
important to work with professional services

Modern
landlords are increasingly likely to be managers rather than hands-on workers.
Their role is now to find suitable properties and then hand the running of
those properties over to other people to ensure compliance with the law.

Typically,
this will involve using one or more letting agents and either authorizing them
to employ further contractors as necessary (for example hiring tradespeople for
repairs) or hiring further accredited/registered/professional help as required.

Modern
landlords are also increasingly likely to need help from professionals such as
accountants, financial advisors and lawyers so that they can manage their
properties in the most tax-efficient way possible, while still staying on the
right side of the law.

Mortgage affordability favours
property outside the Thames Valley area

There
was once a time, not so very long ago when some landlords were prepared to buy
properties knowing that they would generate low yields but also feeling
confident that they would increase in value, probably over a fairly short
period.

In
essence, those landlords were using tenants to cover their costs while they
waited for house-price inflation to do its job. Those days are largely over,
especially for landlords who need to use financing.

While
the buy-to-let mortgage market works rather differently from the residential
one, the concept of “affordability” still very much applies.

What
this means in practice is that lenders want compelling evidence that landlords
can charge a rent which will easily cover their mortgage payments and that
means focusing on yield.

It
is common knowledge that yields in London and the surrounding areas are
currently some of the lowest in the UK. They have been for some time and all
the signs are that they will continue to be for some time.

As
a result, property investors are heading to the Midlands and North of England,
plus Wales and Scotland (and sometimes NI).

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