Residential landlords have been increasingly squeezed in recent years. Indeed, many now wonder whether Buy to Let is still viable in 2020 and whether investors will start seeking opportunities elsewhere. Here, our financial planners at Vesta Wealth consider the state of the residential Buy to Let market in 2020 and what the near future may hold.
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5 years of change
In 2015, new tax laws introduced a higher rate of Stamp Duty when buying a second home or Buy to Let property. Further changes in 2017 prevented private Buy to Let investors offsetting finance expenditure against their property income.
Since then, new regulations have affected landlords seeking to evict troublesome tenants. In late 2019, the government said that it proposed to abolish Section 21 ‘notices seeking possession’, which permit landlords to remove tenants without reason by giving two months’ notice. The ban on tenants being charged letting fees, may have passed additional costs onto some landlords.
Covid-19 brought even tighter restrictions on landlords’ profits and options for managing tenants.
The pandemic and Buy to Let
Covid-19 has brought huge challenges to the UK economy which the government has sought to mitigate as far as possible. In an attempt to protect jobs in 2020, for instance, the Chancellor introduced the Job Retention Scheme in March 2020 to cover 80% of workers’ salaries (up to £2,500 per month). The Business Interruption Loan Scheme also buoyed SMEs by offering £5m worth of overdrafts, invoice finance and asset finance for up to six years in an attempt to stem homelessness amongst renters. Moreover, landlords were banned from evicting tenants.
Whilst many of these temporary measures were welcomed, the government has arguably not given equal attention to supporting landlords, many of whom are families with a second property (e.g. a Buy to Let). Indeed, there are stories of landlords falling into great financial difficulty as their tenants have stopped paying rent in 2020. One landlord tells of losing £35,000 in this way and now faces homelessness. Whilst many have not faced this situation, thousands of landlords have had to account for unpaid or lower rental yields in 2020.
The outlook ahead
Whilst there are challenges for anyone investing in Buy to Let property, house prices have been rising in many parts of the UK in recent months. Market demand is also likely to sustain this trend into 2021. Landlords were also given a boost in the summer budget when the Chancellor extended tax savings from the Stamp Duty holiday to them. In England and Northern Ireland, this temporarily raised the Stamp Duty threshold from £125,000 to £500,000 until March 2021. This could make property more attractive to investors in the short-term, potentially saving up to £15,000 in Stamp Duty.
However, there are signs that some landlords are worried about investing in Buy to Let property, due in part to the extra challenges brought by Covid-19. One survey in March 2020 suggested that almost 50% of landlords were considering exiting the market, with 16% stating in October that they were planning to sell at least some of their rental properties over the next 12 months. At this point, therefore, it seems that some landlords are concerned about the outlook, but we feel it is premature to predict the end of Buy to Let investing, as some are forecasting.
Invitation
Our role here at Vesta Wealth is to help our clients understand what is happening amongst different types of investment, including property, to assist in the conversations you have with your Financial Planner. The important thing to remember with all investing is to ensure your portfolio is appropriately diversified and that you have a strong financial buffer in place for emergencies.
Whilst landlords may be facing challenges to their property portfolios in 2020 and beyond, it is vital to think carefully before making any big decisions which affect your wealth. Consider seeking guidance from a professional financial planner if you need help weighing the different options before you.
If you would like to discuss your financial plan and investment strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.