Buy to let investment still has strong potential to beat savings rates in the long term in spite of tax increases, according to Allsop’s latest issue of the Rent Check.
Rent Check, a barometer for the rental market in England and Wales published with BDRC Continental, found that 37 per cent of landlords anticipate rising rents over the next six months. This shows a growing positivity, marking a 36 per cent rise. 44 per cent of landlords had ‘good’ or even ‘very good’ expectations for their portfolios in the next three months
Despite this rise in optimism, the percentage of landlords intending to purchase one or more properties in the next 12 months dropped to just 16 per cent, its lowest level in four years since the beginning of the Rent Check. In a measure which is likely connected, 83 per cent of landlords reported that obtaining buy to let finance had become increasingly difficult in the last six months.
The Rent Check calculated the estimated annual return for three, five and ten year periods after tax for basic rate 20 per cent tax payers and 40 per cent tax payers in each region of the UK. Rental yields, house price growth and running, finance and legal cost were also analysed.
Employing the use of Office for Budget Responsibility national forecasts for wage growth and house prices, it was found that the top performing regions for indicative returns are the East Midlands and Yorkshire. The areas saw returns of 11.25 per cent per year over a five-year period for a 20 per cent tax payer, and returns of 9 per cent for a 40 per cent tax payer. In contrast, London was the worst performing region. However, it still saw reasonable yearly returns of 5.75 per cent for a 20 per cent tax payer and 4.75 per cent for a 40 per cent tax payer. Of the landlords polled, 45 per cent were higher rate income tax payers.
Partner at Allsop, Paul Winstanley, said: ‘For those with equity to invest, buy-to-let returns still have the potential to outstrip savings accounts over the long term. Whilst tax changes and toughening lending criteria is challenging landlords, most are in it for the long term and we still only expect a small minority to exit as the tax changes feed through. With no quick solutions to the housing crisis, long-term private landlords providing decent accommodation will continue to play an important role in housing our population. As long as there are no new tax rises targeting landlords, buy-to-let will remain a stable and attractive sector for long-term investors.’