Property investment is best regarded as a long term proposition, with a minimum investment of 10 years, if not more. So before embarking on any property investment it makes sense to look at where the market might be in the long term. In this report, Insider will look at where the buy to let market might be in 10 years time.
First of all let us look at a few fundamentals which underpin the buy to let market:
* Interest rates. Have always been a key driver in the property market. But it looks as though investors will be able to enjoy a low interest rate environment, though not necessarily quite so low as today, for at least the next decade.
So cheap investment money is here to stay – for those who can access it.
* Landlord legislation …. and taxation. After a regime of limited regulation and favourable taxation over the last couple of decades landlords now seem to be faced with a much less favourable climate.
Investors will need to watch what the politicians are doing very carefully. How far can policies that are unfavourable to investment go on before the supply of rental accommodation starts to be seriously affected?
*Demand for rental property. Will keep on growing as the population rises. London and the south east will bear the brunt. London’s current 8.3m population is expected to grow to 9.4m by 2022, and will still keep on rising fast.
Ongoing levels of migration are going to be key here, with the UK’s future outside the EU the key issue here.
* Supply of property. Bound to become even tighter. Governments might promise more housebuilding but new homes need new building land, developers willing to pursue and finance schemes …. and sell them at a price people can afford to pay. That won’t be easy, especially in locations where demand is highest.
The build to rent (BTR) sector needs to be considered here. Some cities are seeing significant BTR development.
* Property prices. Pretty much every forecast out there says that house prices will continue to rise. A rough forecast-of-forecast seems to suggest prices will be on average 20% higher in high-demand areas including the south east, and 10% elsewhere, by 2025. In the process the supply-demand balance will worsen.
So what does Property Insider guess, and it is only a guess, the UK buy to let market will be like in ten years time?
* There will still be even stronger demand for property to rent than now. Much is said about ‘generation rent’ – people who only rent because they can’t afford to buy. But even if you take those people out of the equation demand is still huge from low income workers, migration, transient workers and of course students.
Landlords who are still in the market in 2025 won’t have any difficulty finding tenants.
* Rent increases will be a tricky one to forecast. Rent levels in 2025 will be strongly linked to what the economy is doing by then. Wage rises, especially in the public sector, are likely to be limited …. together with social security benefit rises. But what impact will the new ‘more generous’ national minimum wage have on how much rent tenants are willing to pay?
* Property prices will rise as supply becomes tighter, even if house building accelerates and as a result it won’t be possible to return a good yield on just any property. Landlords will need to invest more selectively to ensure a good yield.
* The regulatory and taxation burdens of running a rental property will be significantly higher than today. Extra costs will be partly covered by increased rents, but probably not entirely. Landlords will need to monitor their profit margins carefully.
* There will probably be fewer landlords overall. Accidental and casual landlords will exit the market (maybe even leaving their properties empty and reducing the supply of rental property). The landlords who remain will have the opportunity to own more properties and benefit from economies of scale.
By 2025 Insider thinks that the buy to let market will be very much alive and kicking. But landlords who are in the buy to let market in 2025 will need to be better informed, better advised, more creative and more professional than today. They will need to look at different ways of making money from their property – and adding value – other than just the standard family or professional let, and be more efficient. Those who rise to the challenge and see letting as a business and not a sideline or just a way of saving for a pension will be best placed to succeed.