Should I sell my buy to let or hang on in there

Should I sell my buy to let or hang on in there

There’s a lot to take in if you want to survive in today’s rental market — with more red tape and less tax relief for landlords, and rising rents for tenants. Here’s how things stand, whichever side of the fence you’re on.

LANDLORDS
According to the English Housing Survey, released last week, the number of private households renting in England over the past year has fallen by 162,000. Regionally, the biggest drop was in Yorkshire and Humberside, with 66,000 fewer renters; the reduction was 41,000 for the West Midlands and 39,000 for London. The northeast and East Midlands were the only regions that didn’t see a fall in private tenants.

There is still, however, a huge demand for rental properties across most of Britain, an appetite that hasn’t been dampened by angst about the B-word, says David Cox, chief executive of Arla Propertymark, the body for letting agents. The only “small impact” has been in rural areas where there is EU migration for farming, such as Lincolnshire and Somerset, and in high-end parts of the capital.

“In London, our members have up to 16 tenants for every property coming on to the market,” Cox says. “Even if we see a reduction in immigration as a result of Brexit, there’s still a huge undersupply of properties.”

Although 17% fewer new lets were agreed in prime central London in the last quarter of 2018, due to increasing numbers of renewals, rents are rising in many of these areas because of low stock levels, the analyst LonRes reports. Also, multinationals are still relocating senior directors to London in the same numbers as they were before the referendum, according to Lucy Morton, head of residential agency at the property group JLL. “Historically, they would bring over their families, but now they tend to take an apartment as a pied-à-terre.”

At the top end, stamp-duty increases mean people who would have bought in the capital are renting instead, for £7,000 to £30,000 a week. “Their rent is what they would have paid in tax,” Morton says. “That marries up with vendors who would have previously sold but now let, primarily because of stamp duty, but also because of uncertainty.”

The same reasons have pushed up demand to rent country houses, rather than buy them, says Jess Simpson, an independent buying agent. People leaving the city “want to try out country life before committing to an expensive purchase”, she explains.

Gross yields in London are finally rising — up from 4.6% to 4.7% over the year to the third quarter of 2018 — as rents are growing faster than house prices, according to Savills. “Across the rest of Britain, yields are tightening, from 6% to 5.9%, because house-price growth is faster than rental growth,” says Lawrence Bowles, research director at the estate agency.

Rightmove predicts asking rents will rise 4% in London and 3% outside the city this year. Landlords in the centre of the capital can advertise a little higher to leave room for negotiation, but you should keep the margin modest if you’re aiming for a corporate tenant, says Jo Eccles, whose SP Property Group manages 160 lets in central London.

If you’re looking buy now, this could be a good time, because there are fewer other purchasers to compete with. Yet Eccles urges caution: “Only commit if you have a minimum five-year view. For any shorter period, you are unlikely to see enough capital growth to make up for your costs.”

Rob Bence, co-host of the Property Podcast, which has 180,000 listeners a month (propertyhub.net), is upbeat about the long-term forecast for buy-to-let; he is building homes on four sites in the northwest and recently bought another BTL flat in Manchester.

Property prices in Nottingham, Birmingham and Manchester all rose about 6% in the past year, “on top of probably the most uncertain time since the Second World War”, Bence points out. “Imagine when we have a decision. It doesn’t even matter what that decision is — once we have it, everyone will kick on.” He expects the northwest to boom and London to do well in the medium term.

In the meantime, whether you buy or hold, make sure you can weather reduced tax relief on mortgage interest. “Although it’s been in force for two years, nobody has got a bill until they filed their self-assessment tax returns [last month],” Cox says. “This is having a much greater impact on landlord sentiment than Brexit.” In Manchester, Julie Twist, whose agency specialises in city-centre flats, says “a large amount of smaller landlords” sold up last year — often to bigger investors.

Since the tax changes took effect in April 2016, lenders have issued 189,000 new buy-to-let mortgages, yet the number of outstanding loans rose by less than 59,000. That means landlords redeemed 130,000 mortgages — 7% of the market — as they paid off debt or sold up, Savills reports. Separate analysis by Hamptons International estate agency reveals that landlords sold 61,300 more homes than they bought last year.

Whatever you do, don’t panic, Bence says. “It’s probably the worst time now to sell an investment. If you’re brave, buy. If you’re scared, just hold on.”