Buy to Let: Five reasons why it remains a worthy investment opportunity
Despite the economic shock caused by the pandemic, the future is starting to look brighter. The UK economy is expected to bounce back as early as this year, so we’ve examined five important facts which suggest Buy-to-Let continues to be a positive investment opportunity.
As our towns and cities begin to open up and furloughed staff return to work - a sense of normality will return. The prediction is that household spending will increase from the middle of this year; after all, there is a great deal of pent-up demand for the sort of activities we’ve all been missing – such as seeing friends, having meals out and enjoying weekends away. Therefore, once restrictions are lifted, consumers are expected to pump some much-needed cash into the economy.
The Confederation of British Industry (CBI) is confident the UK will enjoy a 6% increase in GDP this year.
However, one area of the economy which is already enjoying a boom despite the pandemic is the private rented sector. We believe further growth is on the horizon, and landlords who are in a position to expand their portfolio are set to benefit.
Here are five reasons why:
- Rents continue to rise
There has been increased demand for rental homes against a constant backdrop of a limited supply of available homes to rent. This has led to further rental price increases in most regions. According to tenant referencing provider HomeLet, average rents in the UK in February 2021 were £984 per month – a 3% increase versus the same time last year.
However, in addition to this increased demand, tenants have specific requirements, such as office space and family-friendly gardens – features not always readily available in the current private rental stock.
It remains a fact that buying a house remains out of reach for many, even more so now as increasing numbers of households are looking for even more space. Indeed, the demand for rental homes is showing absolutely no signs of dissipating. Some agents are reporting as many as 5-10 tenants are competing for each available home.
All of this suggests the right sort of rental property in the right location should attract optimal yields and limited void periods.
- Property values remain strong
Meanwhile, the downturn predicted by some in the immediate aftermath of the Brexit referendum in 2016 hasn’t materialised. There has been no property market crash; house price growth remains solid, and interest rates remain low.
Despite the multiple challenges the UK has had to overcome in recent years, according to the Office for National Statistics (ONS), house prices in the UK have grown by an impressive 18.5% in just five years; rising from £204,920 in 2015 to £252,000 at the end of December 2020. Ironically, this growth is almost identical to the falls predicted by former Chancellor George Osborne in May 2016.
Even more impressive is that the double-digit growth in property values is in stark contrast to the FTSE 100, whose value is currently just 8.5% higher than it was over the same period.
If house prices can out-perform the 100 publicly owned companies with collectively the highest market value in the UK, throughout what was predicted to have been a damaging time for the property market, then reasonable expectations are that the growth trajectory is likely to continue.
- Low-interest rates
The Bank of England base rate has been at a historic low - below 1% - for as long as any of us can remember.
Low-interest rates over a prolonged period not only ensure mortgage payments remain low, but crucially mean that lenders are more confident passing on these low rates to borrowers.
- Stamp Duty holiday extended
Landlords who invest in a rental home before 30th June this year could save up to £15,000; thanks to Chancellor Rishi Sunak extending the Stamp Duty holiday in the Spring budget earlier this month. Read more about it here: [link to Stamp Duty article]
- Protection just got even better
Finally, despite any uncertainty surrounding unemployment and a tenant’s ability to meet their monthly rental obligations - the rental payments for those landlords who select Rent and Legal protection (RLP) have never been more secure.
Since 1st March, landlords with RLP who have a tenant who defaults can expect to receive 100% of the rental payments for up to 15 months – an increase of nine months; whilst also benefitting from up to £100,000 of legal fees to cover court costs. From 1st April 2021, the cover extends again – with up to 75% of the rent paid after vacant possession has been achieved until the landlord has been able to re-let the home (maximum three months). More Information about the changes to RLP can be found here.
We’re not promising that being a landlord is easy; however, those who want to benefit from the growth in rental and house prices, a reduction in investment costs, and the best protection there have ever been - should act now.
Our Investor Services Team would love to speak to anyone looking to increase their portfolio whilst the opportunity remains strong.