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).