"Away from taxation, it’s possible to still see plenty of reasons to both stay invested in the PRS and to, where possible, add to their portfolios."
From a private rental sector (PRS) and landlord perspective, last month’s Budget perhaps merely solidified the notion that, when it comes to Government support, there is unlikely to be much to write home about, certainly in the short-term but perhaps much further into the future.
Indeed, this may come as no surprise to advisers and their landlord clients, given this has been the environment they have been working in for some time, and if anything, that environment has been hardened by the measures which were announced by the Chancellor, Jeremy Hunt.
Abolishing stamp duty relief on the purchase of multiple dwellings plus the decision to amend the furnished holiday lettings tax relief regime were effectively closing perceived ‘loopholes’ the Government have judged landlords to be ‘taking advantage of’, while the cut to higher rate CGT on the sale of residential property was also designed to provide an incentive for landlords to sell up.
However, when it comes to property investing, landlords tend to find a way to succeed against the odds, and as mentioned, it’s not as if they aren’t used to such an environment, plus of course away from taxation, it’s possible to still see plenty of reasons to both stay invested in the PRS and to, where possible, add to their portfolios.
I recently saw some rental statistics out of Zoopla, which focused on rent increases over the 2020-23 period particularly in towns close to major cities. The statistics suggested these towns have seen some of the biggest rental increases, notably Bolton, Wigan, Newport, Bradford, Rochdale and Luton.
Glasgow, Manchester, London and Edinburgh had also all fared well over the same period, and to my mind, it reflected the continued bedrock of the PRS – namely, demand for properties is still extremely high, supply has not kept up with that demand, and therefore the logical outcome is an increase in rents and yields.
Of course, this has to be offset against the shifting interest rate environment we have seen over the last 12-18 months, and there’s no doubting that many landlord borrowers have had to stomach increased mortgage costs as a result of rates going up.
However, even here, we have some green shoots to hold onto, with the growing hope that Bank Base Rate will be cut this year – perhaps multiple times – and this will be reflected in swap rates, which should feed into more competitive pricing for buy-to-let landlords.
We saw a notable shift in the early part of 2024 in that regard, and while the picture has been more changeable in recent weeks, there appears to be a further movement – certainly in swap rates – especially off the back of the latest MPC meeting and of course with inflation continuing to track down closer to the Bank of England’s target.
So, despite less than positive Government intervention, there are clearly signs that the landlord community is used to this situation, is still positive about the returns that can be achieved, has a potentially more benign interest rate environment ahead of it in the short-term, and can continue to see opportunities predicated on there still being very strong demand from tenants for rental properties.
Securing strong rental yield is still a priority though, and as many advisers will probably testify, this has resulted in landlords looking to diversify portfolios particularly into more specialist, dare I say it, complex areas of the market, to make the most of the properties they own and the tenancies they can achieve.
We’ve seen this right across the board, whether it is landlords moving into the holiday or short-term let sector, or choosing to look at higher-yielding properties such as HMOs or multi-unit freehold blocks, and the similar but different option of multiple properties under one title (MPOT). We’re aware of landlords being much more proactive in these areas because they can see the benefits in terms of yield and capital growth that investing in such properties can bring.
Indeed, Foundation has just launched a specific suite of products for landlords who are either purchasing or refinancing MPOT, which is somewhat unique in that we allow letting on an AST basis, but also short-term and holiday lets as well. Under the new product range, we can lend against up to four individual properties or units on one freehold title.
Overall, therefore, despite the absence of good news in the Budget for the PRS and private landlords, there is still plenty to engage the community and to keep them invested and looking to add to portfolios. It might not be a traditional PRS option for them – the two-up/two-down residential property for long-term tenants on an AST (although this is still a mainstay of the sector) – but could be a more specialist property/arrangement that delivers what they need for the wider portfolio and meets the demand that is out there.
The important point for advisers is they have a range of buy-to-let mortgage product options that fit the bill regardless of what the landlord is seeking to do. Those niches are being filled and we are here to work with advisers who are looking to fill them for their clients.
